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How We'll Make Hundreds-of-Percent Gains in Oil Stocks

By Amber Lee Mason, editor, DailyWealth Trader
Monday, December 15, 2014

One of the world's biggest "boom and bust" markets is moving from bust... to crisis.
 
And as longtime readers know, a good crisis always sets up great trading opportunities... Buying an asset in crisis, and owning it as things go from "bad to less bad," is one of the most profitable trading strategies ever created. You can find opportunities to make $4, $5, even $10 for every $1 you put at risk.
 
It just takes a bit of patience waiting for the right opportunity to buy... And that's what we're waiting for in the energy sector.
 
In July, I warned my DailyWealth Trader readers about an "extreme" in the oil market. Speculators were at near-record levels of bullishness... a signal that regularly leads to big selloffs.
 
Over the next three months, U.S. oil prices fell from $102 to $80... a huge drop. Oil stocks got hammered... An index of major oil companies, like ExxonMobil and Chevron, was down 11% from its peak. Smaller producers, oil-services stocks, and tiny oil explorers had fallen more than 30%.
 
By late October, I was looking for a trade... But I wasn't ready to pull the trigger. Remember, the first rule of trading a crisis is to wait for prices to stop falling.
 
And prices have not stopped falling... The U.S. oil price is now down nearly 46% from its June peak. It just hit a five-year low.
 

Oil stocks are in even more pain... The majors are now down 19%. Smaller producers, oil-services stocks, and tiny oil explorers are down 46% or more. Lots of individual names have fallen much more. And certain sectors of the oil market (like offshore drillers) have gotten extremely cheap.
 
But I'm still not ready to buy.
 
Like I told my readers in October, I want to see shares "carve out" a bottom – bounce along a low for a period – before we buy.
 
That's what happened the last time the oil market went through a crisis...
 
From July 2008 to December 2008, the price of a barrel of oil fell from $145 to $34 – a 77% plunge. Anyone trying to "pick a bottom" on the way down got crushed.
 
In the chart below, you can see oil hit bottom in late 2008... and then bounced along that low for a few months. After it "carved out" that bottom, it rose 140% before the end of 2009. It was up 236% by early 2011.
 
 
The rebound in oil prices produced a huge bull market in oil stocks. The majors climbed nearly 60%. Smaller producers were up 180%... Oil-services stocks were up 200%... And the juniors shot 245% higher.
 
Of course, those returns came after oil's market value had dropped more than 70%. Today's crisis has a long way to go before it gets that bad.
 
But the worse it gets, the better our opportunity will be. We're just watching for the right setup. When it comes, the gains will be worth the wait.
 
Regards,
 
Amber Lee Mason




Further Reading:

Earlier this week, Brian Weepie told Growth Stock Wire readers "Oil's price collapse is setting up a big rally in the energy sector." But it isn't setting up where you might expect... Learn where you'll have an opportunity to make big gains here: How to Profit From Oil's Price Collapse.
 
Matt Badiali says falling oil prices are helping to deliver "one of the biggest commodity bull markets this year." And it's showing no signs of stopping... Get all the details here: The Commodity Bull Run You're Not Hearing About.

Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
W.R. Berkley (WRB)... insurance
Allstate (ALL)... insurance
Berkshire Hathaway (BRK)... Warren Buffett's holding company
PNC Bank (PNC)... bank
Goldman Sachs (GS)... financial services
Morgan Stanley (MS)... financial services
FedEx (FDX)... shipping
AutoZone (AZO)... car parts
Advance Auto Parts (AAP)... car parts
Home Depot (HD)... home improvement
Lowe's (LOW)... home improvement
Sherwin-Williams (SHW)... paint
Visa (V)... credit cards
Disney (DIS)... entertainment
Wyndham Worldwide (WYN)... hotels
Marriott (MAR)... hotels
Eli Lilly (LLY)... Big Pharma
Merck (MRK)... Big Pharma
Johnson & Johnson (JNJ)... Big Pharma
Bristol-Myers Squibb (BMY)... Big Pharma
Medtronic (MDT)... medical devices
Express Scripts (ESRX)... pharmacy benefit manager
Celgene (CELG)... biotech
Amgen (AMGN)... biotech
Altria (MO)... cigarettes
Reynolds American (RAI)... cigarettes
Starbucks (SBUX)... expensive coffee
Dollar General (DG)... dollar stores

NEW LOWS OF NOTE LAST WEEK
 
BP (BP)... Big Oil
Chevron (CVX)... Big Oil
Royal Dutch Shell (RDS)... Big Oil
Gazprom (OGZPY)... Russia's state-owned oil company
Cameco (CCJ)... World's largest uranium miner
IBM (IBM)... Big Cheap Tech
Anadarko Petroleum (APC)... oil & gas production
Range Resources (RRC)... oil & gas production
Schlumberger (SLB)... oil services
First Solar (FSLR)... solar energy
SunPower (SPWR)... solar energy
Halliburton (HAL)... oil services
Peabody Energy (BTU)... coal stock
BHP Billiton (BBL)... diversified miner
Wynn Resorts (WYNN)... casinos
RadioShack (RSH)... electronics
SeaWorld (SEAS)... entertainment

premium teaser

Up 9% in this "bad" to "less bad" trade... with room to run...
 
One of the greatest investing lessons I've ever learned is: The biggest gains come when things go from "bad" to "less bad."
 

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