According to the North Dakota Department of Mineral Resources, domestic oil production from the Bakken shale in North Dakota is up four-fold since 2005, to 460,000 barrels per day, and it's projected to keep on rising.

If you've paid attention to the oil and energy markets at all over the last five years or so, you've inevitably heard of the Bakken...

To wrap up this week, I decided to respond to some reader mail…

Cato asked: For a while I have been loading up on Bakken companies like BEXP. I was surprised about 6 - 8 weeks ago when oil price went up and BEXP went down. How can it be? I think a lot of your readers are puzzled so perhaps you could explain it in your newsletter?

Let me start by saying I am bullish on Bakken oil companies. Especially the small ones that are still ramping up their production.

The most important thing to remember about oil stocks, and oil in general, is that they are seasonal. Institutional investors buy them at certain times of the year, and sell them at others, regardless of what's going on with oil prices.

Yesterday, we talked about bubbles and tech stocks. While it's possible to argue that certain sub-sectors of the Nasdaq may have some bubble-like valuations, technology blue chips are definitely not in bubble territory.

As I noted, the Nasdaq 100 (NDX), which is comprised of the 100 largest companies on the Nasdaq, is currently trading with a trailing P/E of 12.5, according to the Wall Street Journal.

Finding oil out in the Bakken shale in North Dakota is a hot topic for many energy exploration companies.

The Bakken formation is known as a dependable supplier of crude oil and natural gas, but there's another lesser known region that promises to become the next big thing in the U.S. for oil and gas explorers.

Executives from the five largest oil companies were scheduled to appear before a Senate finance committee to answer questions about tax breaks that saved them an estimated $4.48 billion in 2010.

With gas prices over $4.00 a gallon in many parts of the country, and oil companies reporting profits at all-time highs, some lawmakers are wondering if tax breaks for oil companies are the best idea when consumers and government are struggling with debt.
One such tax break allows oil companies to treat royalties paid to foreign governments as a foreign tax, and so that revenue can be deducted from declared earnings in the U.S.

Of course, that tax break doesn't affect the oil companies that are focused on production in the U.S., like the small companies working the Bakken oil pool in the Western U.S.

Because the Bakken is a new discovery, many of these companies working the Bakken have only recently become profitable. That means they have accumulated tax credits that will help them maximize profits in the future, with or without the tax breaks currently under consideration.

The Bakken oil pool contains at least 4.5 billions of barrels of oil. And the recent temporary correction for oil prices has left Bakken oil stocks trading at very attractive valuations.

One top Bakken stock recommended by Wyatt Investment Research now trades with a forward P/E of just 11, even though profits will grow 250% this year.

50% gains or better are expected for this Bakken oil producer. For more, click HERE.

Citi has been a favorite of the high velocity trading firms, who using computer algorithms to scalp pennies from stock price movement. Being a low priced stock that did huge daily volume, Citi was perfect for the machines. And you could see it in the volume. There were days when Citi accounted for as much as half the shares traded on the NYSE.

But now, at $44, the machines will need to move on. That's going to mean less volume on the NYSE.

Finding oil out in the Bakken shale in North Dakota is a hot topic for many energy exploration companies.

 

The Bakken formation is known as a dependable supplier of crude oil and natural gas, but there's another lesser known region that promises to become the next big thing in the U.S. for oil and gas explorers.

Stocks look poised to push higher again this week. The S&P 500 is on the cusp of a break above resistance at 1,335. And that would likely set up a test of the post-crash highs at 1,344.

But as Jason Cimpl told his TradeMaster Daily Stock Alerts members this morning, earnings are coming and stocks have been relentless since recent lows:

Although the market participants have seemingly not cared about economic data for the past few weeks, the market will not move higher if earnings disappoint. And earnings season will officially begin next week. Even though the bulls look unstoppable now, and to a large degree they have been over the past eight months, a poor earnings season will awaken the bears.

Additionally, I would prefer the market fall to 1301, which lets the bulls regroup before they take stocks to new highs.

Alcoa (NYSE:AA) starts earnings season next Monday, April 11.

While investors are focused on events in Japan, oil prices have crept back above $100 a barrel as tension in the Middle East escalates.

The U.S. is now supporting a "no-fly zone" over Libya, and perhaps even strategic air strikes. And the government in Bahrain has apparently invited the Saudi Arabian military to help it suppress protests in Bahrain.

Iranian leaders are complaining to the U.N. about the presence of Saudi troops in Bahrain; this is mostly fueled by the fact that the protesters in Bahrain are Shiite Muslims, like the Iranians, while Bahrain’s royal family and Saudi backers are Sunni. This may seem to Westerners like splitting hairs, but to them this is significant. 

The U.S. Strategic Petroleum Reserve is an estimated 727 million barrels of oil sits in salt caves along the coast of Louisiana and Texas. And now that unrest in the Middle East has spiked oil prices close to $107 a barrel, President Obama is reportedly considering releasing some of that oil into the market to help control rising oil and gasoline prices.

Of course, no one is certain that more oil supply will help reverse prices. Saudi Arabia has already increased production, and oil prices are still rising.

Oil prices continue to rise because investors are becoming increasingly worried that unrest is spreading to major oil producers like Iran and Saudi Arabia, which so far had been relatively immune to turmoil in northern Africa and around the Arabian peninsula. Clearly, any supply disruptions in Saudi Arabia and oil prices will go sky high.

That was quite a rally yesterday. A big drop in new unemployment claims, some pretty good retail numbers from February, and some hope that the Libyan situation may be nearing an end, bolstered the good vibes from Wednesday's ADP private payroll report and sent stock flying higher.

The entire "Apple Complex" of did pretty well, too...

The "Apple Complex" is an open-ended growth story. When you start to imagine the potential of global penetration for this new generation of devices and services, you can get some pretty staggering numbers. That means we can use these stocks as bullish indicators.

With unrest spreading across the Middle East, and as much as half of Libya's oil production shut down, Nomura Securities is forecasting oil prices will hit $220 a barrel if Algeria sees significant unrest.

Oil companies that face potential supply disruptions won't be the best performers as oil prices move higher. Instead, smaller companies that can leverage higher prices will be the best bets.

Once again, China has raised reserve requirements for banks to slow down lending and, hopefully, slow inflation, too. China reports that inflation accelerated to 4.9% in January. Part of the reason is that drought has damaged China's grain production and food prices are up.

Chinese banks lent $158 billion in January. That was more than double the rate of lending in December. Apparently, lending typically surges in the early months of the year in China.

Bloomberg reports that Brent crude prices topped $103 a barrel today. Brent crude is the benchmark for two-thirds of the world's oil supply.

Global oil markets are clearly concerned about escalating troubles in Egypt, Jordan, Tunisia, Yemen and a handful of other Middle Eastern countries.

The potential for supply disruptions is the catalyst for sustained "triple digit oil" we’ve all been dreading.

Oil prices surged on Egypt riots and events in other parts of the Middle East, particularly those near oil producing areas.

Newsmax reported that European Brent crude oil sold for $100.95 in trading yesterday - marking the first time in over two years.

American oil markets are still lagging the $100 mark, with West Texas crude selling for about $92 a barrel.

And while troubles in Egypt, Jordan, Tunisia, Yemen and a handful of other Middle Eastern countries continue, oil prices can only rise.

Oil prices are expected to increase to

OPEC meets in Ecuador this week. And with oil's recent advance to $90 a barrel coinciding with an increase in consumer spending, the main topic of conversation for OPEC officials will be whether to increase supply to offset rising oil prices.

 Saudi Arabia's oil minister is on record as saying that the acceptable price range for oil is $70-$90 a barrel. But influential investment bank Goldman Sachs is predicting that oil prices will average $100 a barrel in 2011.

 That forecast, however, may be too low. Some expect oil to reach $120 in 2011.

Ever since the Gulf of Mexico oil spill, BP has been very quiet about where it is drilling for oil. But the announcement that BP is raising cash by selling its stake Pan American Energy for $7 billion means that the damaged company is ready to start developing new oil fields.

This time, however, BP will not be drilling in deepwater. Instead, BP plans to produce 60,000 barrels a day from its partnership in a land-based Canadian oil field.

New technology has led to a renaissance of North American oil production. One such oil rich area stretches from Wyoming, through North Dakota and into Canada. Known as the Williston Basin, this geological formation includes the Bakken Oil Pool, which has at least 5 billion barrels of reserves.

The parallels between the current recovery and the "jobless recovery" of 2003-2004 just keep coming.

Readers may remember the period, marked by investors' "not too hot, not too cold" bias. Stocks would sell-off if economic data was too good, because it implied the Greenspan Fed would reverse its interest rate policy.

Conversely, data that hugged the flat line, came in slightly positive, or even slightly negative, would rally stocks because it meant there was no danger of an end to the low interest rate environment.

There's a hidden tug-of-war happening right this minute. On one side stands a massive and hugely popular contestant, with millions of fans and groupies.

And this contestant gets bigger every day, every moment, even. He's closely acquainted with President Obama. He's best buds with Nobel Laureate economist and New York Times columnist Paul Krugman. He and John Maynard Keynes go way back.

You might know him as 'debt' or maybe 'deficit' if you want to get formal about it.

He's currently facing an opponent that no one really pays too much attention to. Sure, they'll pay some token lip service to debt's opponent - but c'mon; who is kidding who? Debt is WAY bigger and more robust than this puny shrimp.

The Bloomberg headline reads "Stocks Fall on Earnings." As you know, I've been watching for signs that 2Q earnings would be disappointing. And while analysts have lowered their estimates slightly, we have still not seen any significant profit warnings for 2Q earnings season.

Earnings season kicks off with Alcoa (NYSE:AA) next Thursday, July 12. It would seem as though the window for earnings warnings has all but closed.

In fact, just this morning, we've gotten upside earnings guidance from Samsung, State Street (NYSE:STT) and Dollar Thrifty (NYSE:DTG).

Growth vs. debt. That's the focus of the G20 meeting that started over the weekend. The growth camp is led by U.S. President Obama, while those focused on debt reduction are led by Germany's Angela Merkel.

Initial proposals call for deficits to be cut in half by 2013.

There's no way that such "across the board" deficit targets can be approved. The global economy is still facing deflationary pressure. Drastic spending cuts will only make that worse.

Sometimes, trying to decipher the stock market's signals is easy. Like during the rally out of the March 2009 lows. It was clear that stocks were ready for a strong move higher.

Sometimes, it's more difficult to get a handle on the subtle shifts in sentiment that drive stock prices. The correction in January of this year is one such example.

Other times, it's darn near impossible to read the tea leaves. I'd say now is one of those times. The stock market is giving off mixed signals. And that's because, at the most fundamental level, the economic picture is mixed. For every bullish point investors can make, there's an equally valid bearish counterpoint.

One month ago, I wrote about the sudden downtrend in oil prices. Of course at that point BP Plc (NYSE: BP) had already been in the news for a few weeks thanks to the oil spill in the Gulf of Mexico. At the same time, the broad market was still reeling from the near -1,000 point flash crash.

Out of all this bad news it seemed as though oil stocks were among the worst hit.

I also predicted that prices might drop lower. I wrote:

“This 13 company index could test the year-to-date lows of 990 – but there are also the sub-800 lows of just over a year ago to contend with as well. I won’t pretend to know which lows the index will test, but I’ll look for any reversal at these key numbers as a time to buy.”

Since then, this index blew by the 990 level, and fell even further, down another 12% since May 10:

That was an excellent rally yesterday! The S&P 500 broke through important resistance at 1085. For more insight, I will turn to my trusted sidekick, technical analyst for TradeMaster Daily Stock Alerts Jason Cimpl…   

 

After the weakness on Tuesday, I was beginning to doubt the bulls ability to take the market higher. The group came through yesterday and took back 1085, which needs to become support. Volume was low again, but internals were commendable as buyers out numbered the sellers by 5 to 1. Today the big resistance to watch will be 1103 and 1115. SPX 1103 stopped the market dead in its tracks last week. Stronger lateral resistance exists at 1115 which dates back to December 2009 and is also the 20 DMA and gap resistance.   

To call the explosion of the Deepwater Horizon oil rig and the subsequent well damage that’s allowed millions of gallons of oil spill into the Gulf of Mexico a tragedy is an understatement.   

 

Eleven men died when that rig exploded on April 20th. And now, critical fisheries along the coasts of Louisiana, Alabama and Mississippi are being destroyed. The commercial fishing industry in these states is threatened and a way of life for these fishermen may be coming to an end.   

 

An oil slick is reportedly nine miles off the coast of Pensacola.   

 

BP itself is under siege, too. The stock is in a virtual freefall as repeated efforts to cap the leak have failed. It could be months before the leak is stopped. Costs to the company could hit $22 billion. And that’s if BP didn’t do anything wrong. 

It’s looking as though U.S. stocks made an important low yesterday. The S&P 500 fell below February’s low of 1044 and then made a powerful reversal to close at 1,074.   

 

Leading the way was Goldman Sachs (NYSE:GS). It put in a low at $134.20 and closed the day at $142.56. Today it’s up another $2 or so.   

 

This powerful reversal move by Goldman is significant for a couple reasons. One, it’s something of repudiation of the idea that financial contagion is spreading from Europe to the United States. And that fear has been driving stock prices lower over the past couple of weeks.   

There’s no ignoring the European debt problems today. Real estate loan defaults are crippling a few Spanish banks, and the IMF has advised that Spain’s banking sector needs to consolidate quickly to provide a more solid backstop against defaults.   

 

If this reminds you of the scramble here in the U.S. to have weak financial institutions like Merrill Lynch and Countrywide be absorbed by stronger companies, it should.  

 

And we should also recall that while consolidation helped mitigate some of the potential effects of the financial crisis, it wasn’t a smooth road. Even the strong banks eventually required billion in bailout money to keep them afloat

I really, really don’t want to talk about the euro today. And I think I’ve made myself quite clear about oil prices. (In fact, I just recommended another top-notch Bakken oil producer to Energy World Profits readers last Thursday that should be good for a quick 30% gain as well as outstanding long-term growth. You can learn more HERE.)   

 

Today, there’s something else on my mind.   

 

As usual, there’s a wide range of debate over whether stocks are overpriced or not. The Wall Street Journal says that the price-to-earnings ratio for the S&P 500 is currently 19. Based on forward earnings estimates, it’s 14. Clearly, a p/e of 19 is above the historical average of approximately 16. And the forward p/e of 14 is below the historic average. It’s likely that the truth lies somewhere in the middle. I have no problem stating that stocks appear more or less fairly valued at the moment.  

I was trolling Bloomberg last night and I came across the following quote:  

 

“The volatility genie is out of the bottle and it will take some time to put it back…”   

 

It doesn’t really matter who said it or what they were commenting on. I initially dismissed it as one of those clichéd comments that just takes up space and doesn’t really add anything meaningful to the discussion.   

 

I mean, “volatility genie”? Come on.   

On Monday, when it was apparent that we were in for a big day as futures went limit up in pre-market, I said I wanted to see a candlestick pattern called “three white soldiers.”  

 

Three white soldiers basically means three pretty good sized up days in a row. This pattern is considered very bullish, especially after a period of consolidation. And the reason it’s bullish is fairly easy to deduce. 

 

A period of consolidation for a stock means that not much is changing. The buyers and sellers are pretty much in agreement as to what it’s worth. And so the price doesn’t change much. 

As Germany voted to approve bailout money for Greece, German Left Party lawmaker Gesine Loetzsch was quoted as saying "Speculators are Taliban in pinstripes, and people in our country must be protected from these Taliban…”  

 

It’s scary to me that any political leader could voice such an inflammatory and downright naïve opinion.   

 

If a hitter in baseball can’t hit the high fastball, then that’s exactly what he will see until he makes an adjustment. When Yahoo! failed to take advantage of its early-mover status on the Internet to implement a viable paid advertising model, it opened the door to Google.   

Just yesterday, we discussed how stock market plunges can be set off by what amounts to a “global margin call.” And that’s exactly what yesterday’s decline felt like, as the selling was relentless.  

 

There were no bounces, no dead-cat rallies as the selling built pressure built until it reached its crescendo.   

 

That crescendo, a 998-point spike lower on the Dow Industrials, was caused directly by some computer-based trading programs gone haywire. (There’s no other way to explain how Accenture (NYSE:ANC) could drop from $40 a share to a penny.)  

We’ve been tackling some pretty heavy issues in Daily Profit this week. And while I’m not one of the doom and gloomers who believe that stimulus policies and sovereign debt issues are about to bring about a stock market crash and economic depression, I’m adamant that we keep a firm grip on the all of the catalysts that are driving the stock market and the global economy.   

 

Stimulus policies in the U.S. were designed to help prop up asset values long enough for demand to return. If the plan succeeds, then employment will improve, lending will pick up as the housing market works off inventory, and the toxic assets that exist on the balance sheets (both banks’ and the Fed’s) can regain some value.   

 

If the plan fails, then we see another fire-sale of assets in what amounts to a huge margin call.