Beat the Bull Market With Oil and Russia Plays

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 |  Includes: CEDC, NOV, OIL, RSX, TBT
by: Glen Bradford
1. Fire the Analysts:

I’m tired of analysts recommending stocks from their sectors for “Best Stock of 20xx” and then downgrading them weeks later because the stock depreciated in price. What makes me the most upset is when people recommend their “best stock” and don’t own it. Disclosure of ownership through a index or mutual fund isn’t owning it by the way. If I can find an analyst that holds a 10% of their portfolio in their #1 recommendation --- then I’ll listen. Until then, it’s glamorous hocus pocus.

2. Call it Late:

I called the Hang Seng bottom earlier. Back then I’d have assigned a 90% probability to that bottom. I’d assign a 75% probability to the Breaking Bull 2009 in Russia and Oil. What I’m looking for is a 20% reversal off the bottom to indicate that we are in Bull market territory. Look below. Have we turned and is there upside? I believe so.

Exhibit A

52-Week High
Bottom Price
$88.15
$20.35
$59.58
$10.62
Bottom Date
26-Dec
20-Nov
+20%
$24.42
$12.744
Today's Close
$25.11
$14.21
Break? (Y/N)
Y
Y
Click to enlarge

The Supply of Oil has been cut to compete with the falling Demand in order to encourage higher prices. Let’s take a look at a consensus:

Exhibit B

Retail investors Consensus Oil Price for 2009 is 60 to 70 dollars a barrel and 57% of retail investors predict oil to end 2009 between 50 and 80 dollars a barrel.

In the more extreme scenarios, 13% predict oil to end 09 between 10 and 20 dollars a barrel and 16% predict that oil will end 2009 above 90 dollars a barrel.

3. Play Your Cards:

Click here if you want a more detailed analysis on the Russian Bull 2009. But, how do you play this? Here are four situations in which I’m actively invested to capitalize on this. The first two are general plays and the second two are actual specific company picks. I’m looking for a double in all four.

Card 1

DXO is your double leveraged ETF for crude oil. This one you simply have to buy the ETF. It’s a play on the global supply of oil being cut until it’s profitable again.

Card 2

RSX is your way to buy into the general Russian Stock Market. It’s down big and the oil rebound will save this ETF.

Card 3

CEDC is a play on the revaluation of the Russian Stock Market. It’s a great company that has gotten shafted in the stock market. It’s been growing at 30% and is priced to grow at 2% even though they routinely confirm excellent guidance and are highly predictive with 0.948.

Card 4

National Oilwell Varco (NYSE:NOV) is priced to grow at 0%, even though it’s been growing at over 50% over the past 5 years with predictability of 0.974. NOV manufactures upstream oil and gas manufacturing equipment.

Wild Card

One way to capitalize on a bullish attitude in times of high volatility and subsequently high option prices is combination options. Paul Price frequently writes about such strategies. In the 4 Cards listed above, RSX is my favorite for such a strategy.

4. Keep your eyes Open

Another thing, I’m not afraid to say I’m wrong. If we see a huge turnaround to the downside, I will write to inform that I have changed to bearish. The goal of course is to accept the type of market you’re in and use this knowledge to take full advantage. What am I also looking at as far a huge theme? How about the US Treasury Bubble collapsing. TBT is going to be the ship I board to ride this one out. Closing your eyes in the mist of collapse never saved anyone. You need to have them open so you can get out and into something better.