Spotting bottoms can be among the most important traits of good stock pickers, because bottoms are the stuff of buying low and selling high.
The problem is that you usually can't spot a bottom until one is firmly in place.
Think about it. We are now talking about the possibility that the airline stocks have hit bottom. But if you look at the charts, you can see they almost all hit bottom at the end of June, with Delta Airlines (DAL) at $33 -- it is now at $40 -- United Continental (UAL) at $37 -- it is now at $55 -- and American Airlines (AAL) at $25 -- it is now at $40.
Those were very hard bottoms to spot, because they came at the worst moment in the cycle -- when plane capacity was expanding while fare wars were breaking out all over the place. The latter is still happening, but the former might be going away. You had to buy the stocks, though, when both fare wars and increased capacity seemed out of control.
Now I am wondering if the same thing is happening with the oil drillers and service stocks. Take the two biggest, Halliburton (HAL) , which reported a terrific number yesterday, and Action Alerts PLUS holding Schlumberger (SLB) , which reports today. You could have waited for that excellent HAL quarter, or you could have bought HAL's stock at $49 yesterday -- or even at $33 during the last swoon down to the $30s. We haven't seen SLB's numbers yet, but I bet that $75 price is looking pretty darned good for a bottom with the stock now at $83.
The issue, like the airlines, though, is do you trust management. Halliburton has been bullish too early before -- and it didn't work. This time, though, it really walked the walk, with some very good growth in the U.S. and a statement that the U.S. always leads the way.
Schlumberger could say the same thing.
So can you just go out and buy them? If you use the airline stocks' example, then the answer is that you are already too late for the real bottom -- but you do tend to get a test that takes you about half way back to where the bottom was.
In other words, you missed it. But now you have to wait for a better, but not best, entry point because that entry point has passed.
Now it is true that $50 is looking like the new $40 -- the old line in the sand for oil.
That's not just because of the November freeze OPEC has announced. It is now looking like there was slightly more demand in October than there was in September.
I think that the way you have to approach this group now is to wait for a price break back to $48 to 49 for oil and then, if you haven't bought, you will get a better chance than now.
One thing is certain, though, the oil service stocks, like the airlines, put in a bottom when things were the worst: no pick up in pricing, meager rig growth and still-massive cuts in big productions around the globe -- which, to be sure, SLB has more exposure to than HAL.
So, if you haven't moved by now, wait.
But understand, both the airline and oil service bottoms came when things were ugliest. The all-clears? They are truly done well after things were all clear in the stocks, just not with the companies, because, as always, stocks anticipate a bottom well before one can be detected, or, for that matter, deserved.