How to Trade the Oil Crisis
The market notched more gains last week as the indices roared higher. Most of the major indices closed the week at new highs, and despite overbought conditions, showed no signs of turning. While the indices are past-due to correct, as of Friday we had not seen any sign of selling from the market. But as noted in the weekend video SPX and other indices are up against formidable resistance, which should began to act as a barrier for the market bulls.
Oil, oil and more oil, will be a big focus this morning. But that will not be the last time you hear those words this week. Over the weekend tensions rose in the Middle East and Africa which led to blood shed in the region. Libya was the center of attention yesterday, but trouble still exists in other parts like Bahrain, Egypt and Yemen.
The continued strife and dissent in the regions has worked its way into the financial market. Asian indices were down nearly 2% and Europe trades down 3% since Friday.
The big story here though, is oil. Overnight, the price of oil increased as much as 10% before settling around 7%. While this will be an ongoing tale, it is going to be very interesting to see how the market digests such a huge one-day move from oil. The indices opened lower, but I will be more focused on where they find support. For most indices the nearest support areas are some 4% lower from Friday's close.
Additionally, it will be interesting to see how long the gains in oil can last. The pop in oil is due to the violence in Libya, Africa's third largest producer. Libya produces about 1.7 million barrels of oil a day. For perspective, the world consumes 88 million a day, and the U.S. and Russia each produce around 10 million each day. Although production from Libya is not high, the nation boasts 44 billion in oil reserves that have not been developed.
There will be a webinar coming up next week that is free to all Market Forecast readers. While the topics will be diverse, I will discuss the recent movement of both oil and gold. If you would like to sign up for your free pass to the webinar CLICK.
While the move in oil today will be incredible, most commodities should be higher as fears spread. Additionally, as I noted in last week's comments, I expect near term dollar weakness. To that end, gold, platinum and silver are the best pure commodity trades to make.
From the miner side, I recommend you trade oil and gold miners. The past few weekend videos have dived into dozens of miner trades. We took one of those (a less risky stock) last week. Shares of ANV were picked up after they confirmed a break out beyond $29. I expect the stock to continue higher to $34.50 over the next month. But if you want additional risk, watch the video HERE on ALJ, PDC, BPZ, ANV, ATW, REXX, PTEN and THM.
The TradeMaster portfolio currently holds ANV with a $34.50 target and BPZ with a $7.50 price target. Additionally, we had previously owned shares of ALJ, which were sold on 2/14 for nearly 50% gains.
While I predict a bearish turn to the market is near, sellers need to prove themselves before we switch our strategy.
Watch List
The TradeMaster Daily Stock Alerts watch list is bullish again. For a full list of our trades and video of our current stock watch list CLICK.
