Beat the Bull Market With Oil and Russia Plays

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	OIL	RSX
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

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 (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.

Comments

[Against Aph...:]

I replied to your other article calling for a 2009 bull market (see below). This one seems far more valid. Oil should do well. Stocks have many issues left to overcome.

On Jan 04 10:03 AM Against Aphobus wrote:

> What about the fact that none of the economic fundamentals have improved!?!
> The market will not just rise (sustainably) because some time has
> passed and a few sketchy technical points have been crossed. Inflation
> is the one "force of nature" effect that will push markets up (not
> in VALUE but in PRICE). Other than that, I don't see much of a case
> for a sustained bull market.
>
> Even admitting that inflation by itself is a bullish force on stock
> prices, with earnings in the toilet and borrowing difficult, I'd
> rather invest in commodities.

Jan 04 10:08 AM

[Glen Bradford:]

I own RSX, DXO, CEDC, and NOV

Jan 04 04:11 PM

[Glen Bradford:]

The purpose of the Bull Market article is to set the stage for buying stocks. If I'm learning anything, buying stocks in the middle of a bear market, say last June for example, isn't the call. You have to wait for signs of the end of the bear and the start of the bull. So, that article set that stage. Now that I'm feeling bullish, I'm looking for plays to ride back the reversion of strong means. DOW looks great (Dow chemical) right now at $15.41


On Jan 04 10:08 AM Against Aphobus wrote:

> I replied to your other article calling for a 2009 bull market (see
> below). This one seems far more valid. Oil should do well. Stocks
> have many issues left to overcome.
>
> On Jan 04 10:03 AM Against Aphobus wrote:

Jan 04 04:21 PM

[Glen Bradford:]

I'm buying TBT tomorrow.


On Jan 04 04:11 PM Glen Bradford wrote:

> I own RSX, DXO, CEDC, and NOV

Jan 04 04:22 PM

[{5U}:]

BIggest rallies are in bear markets

The rally in oil is being triggered by geopolitical tensions. These economies budgets rely on $100 oil so expect the sabers to continue to rally.

Pretty scary stuff.

Jan 05 08:58 AM

[Paul Killinger:]

You guys have guts, I'll give you that.

Here's another bullish clue -- small stocks are up 25% off their bottoms.

And I believe you're right about Treasuries, as well. I've been looking for a way to play this theme short term besides the obvious long term one (gold). Thanks.

Jan 05 10:03 AM

[aluft79:]

I believe DXO is an ETN not an ETF. It certainly has been performing well in the past week and Im all for the oil play. But, is anyone a little worried about all that we dont know about ETN's and the details behind these contracts that DXO banks on?

Jan 06 12:06 AM

[00Billy:]

Good article. As a non-pro I have always taken a cynical approach to who declare a stock as a brilliant pick, but don't own it. Thanks for the transparency Glen. I will definitely look for your articles.

Jan 06 09:06 AM

[mkreisel:]

Since retail investors are always wrong, oil will finish 2009 not above 50.

Which means it's quite safe to short DXO, possibly to zero.

It doesn't matter what growth rate NOV had enjoyed in the past 5 years because the fundamental situation has completely changed. Oil service is a notoriously cyclical business and company's earning power can vanish over night. I say you better prepare for a 50% earnings DROP for NOV.

Jan 09 11:09 PM

[bapa:]

Yes, DXO is an ETN. ETNs involve counterparty risk that ETFs don't. If the manager of an ETF goes belly up, the underlying equities are still there and another manager takes over. With an ETN, the counterparty can go belly up and you can be wiped out. This is how I understand it.

DXO would be a nice play in a confirmed uptrend, but it's a bit dicey at this juncture IMHO.

Feb 12 11:35 AM