Don't Give Up on Oil Stocks as Markets Rebound

The Federal Reserve on Wednesday held monetary policy steady and said the U.S. economic recession was easing, as it signaled its worries over a possible troubling downward spiral in prices were fading. After Wall Street and Main Street digested what the Fed said, they turned bullish today.

Investors rushed back into stocks as profits at a handful of companies indicated the economy might be gaining strength. Gains in homebuilders, retailers and other consumer discretionary stocks pushed the market sharply higher Thursday. The Dow Jones industrial average rose 175 points.

Traders focused on several positive earnings reports and welcomed news that the Federal Reserve took the first step toward removing the numerous emergency lending programs it launched last fall at the height of the financial crisis.

In a statement, the Fed's policy-setting panel said it would hold to a previous pledge to buy $1.45 trillion in mortgage-related debt by year-end and $300 billion in longer-term U.S. government debt by autumn, a decision financial markets had largely expected.

Shares of homebuilders rallied after Lennar Corp. (LEN) said orders for new homes jumped 63 percent during the second quarter and reported revenue that beat expectations.

Retailers and other consumer discretionary stocks rallied on an upbeat report from Bed Bath & Beyond Inc. (BBBY) The home furnishings store said its fiscal first-quarter profit climbed 14 percent as sales rose after the liquidation of rival Linens 'N Things. Home Depot (HD) rallied over 4% in sympathy with the enthusiasm being generated by both the Fed's statement and the encouraging earnings reports.

The Year's Best Opportunity to Profit in the Oil Sector?

Jeff Clark writing for The Growth Stock Wire claims:

We are approaching the best oil-stock buying opportunity of the year. I know that sounds ridiculous.

After all, the American Stock Exchange Oil Index is down 15% on the year. And Big Oil companies like ExxonMobil (XOM) Chevron (CVX), and ConocoPhillips (COP) are down 15% as well.
The price of oil, though, is 50% higher today than it was when it started 2009. So, what is the problem with the stocks?

Frankly, Jeff doesn't know and neither do I. Perhaps it has to do with all the muted uncertainity and angst that still exists on both Main Street and Wall Street.

Jeff continues:

I wish I could tell you the oil stocks outperformed crude oil late last year and the sector rallied ahead of the commodity. But it didn't. Oil stocks bottomed with the overall stock market back in March.

Since then, the gains have been modest at best. At worst, they've vastly underperformed the remarkable rally in the price of crude oil itself. But that's about to change. My No. 1 oil stock indicator is about to turn bullish. Take a look...

The Bullish Percent Index measures overbought and oversold conditions. The index ranges from 1 to 100. Any reading below 10 indicates the sector is oversold and investors should prepare for a rally. A reading above 70 indicates the sector is overbought and may be ready to decline.

You can see how this chart matches up against the performance of the AMEX Oil Stock Index...

The blue arrows indicate Bullish Percent Index buy signals. Each one preceded a rally of more than 20%.

Recently, oil stocks peaked in early June and have been trending lower ever since. But they're rapidly approaching the oversold level.

As soon as the Bullish Percent Index drops below 10, we'll want to be ready to buy the oil stocks. It may be the best opportunity to profit off the sector this year.

This is something worth serious consideration.

So it appears today that it isn't the time to be bailing out but to be reconsidering where money can be made and being ready for whatever opportunities are impending. "Get Ready, Get Set, Not Quite Yet!"

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

Disclosure: I'm not long any of the stocks mentioned in the article.

Comments

[vpratt51:]

Wow! No comments yet? Not even a thanks for the info? We can be such a rude bunch. I have been foolishly expecting the usually dependable run up in spring and summer for my shares in COP. It looks like it will be late, if at all. Meanwhile my reinvested dividends buy more shares.

So that's my comment, and my thanks.

Jun 26 01:47 PM

[Nanacat:]

Good news! Thanks.

Jun 26 03:20 PM

[Marc Courtenay:]

It is for people like you and Nanacat that I "keep on keeping on". Thanks for your gratitude and your feedback...sincerely!


On Jun 26 01:47 PM vpratt51 wrote:

> Wow! No comments yet? Not even a thanks for the info? We can be
> such a rude bunch. I have been foolishly expecting the usually dependable
> run up in spring and summer for my shares in COP. It looks like
> it will be late, if at all. Meanwhile my reinvested dividends buy
> more shares.
>
> So that's my comment, and my thanks.

Jun 26 04:39 PM