New Trading Range for Oil - John Stolberg

One great advantage of writing an investment letter and moderating several investment discussion forums is I get ideas and research via email from my readers to consider.  Some give me permission to publish what they send me and use their names and others ask me to keep their contributions anonymous.

This commentary is from a long-time reader and newsletter subscriber, who has been a friend and contributor way back to my  "Personal Finance and Investing" days at Suite101 back in the early 2000s.   Trekkies will get a chuckle from his signature.

-------- Forwarded Message --------

Subject:	New Trading Range for Oil
Date:	Thu, 9 Jul 2015 05:22:13 -0500
From:	John Stolberg
To:	Kirk Lindstrom

Dear Kirk,

Oil markets are still oversupplied and recent weakness in China is likely to keep continued pressure on oil prices.

The US Energy Information Agency is likely to revise US oil production numbers down for May and June as it replaces extrapolations with real numbers which take up to 4 months to come in.  US oil production numbers are likely to continue downward for the rest of the year.

So the oil markets are still oversupplied, but not nearly as badly as they were before.  Prices broke out of their flag to the downside and previous support of $57 to $58 per barrel is now likely to become resistance.  However, I don't see prices below $48 per barrel for long.  A retest of the low is possible, but I expect the new trading range to be between $48 and $58 per barrel.

Gasoline sales usually peak for the year during the July 4th weekend.  Gasoline prices should be trending lower for the rest of the year.  Refiners have been churning out record volumes of gasoline at very high margins.  Their earnings for this summer are likely to be unsustainably high. I sold VLO earlier this year.  I tend to be early.  The stock is slightly higher now.  Valero is trading with a trailing P/E of less than 9 and a dividend rate of 2.4%.  PEG is 0.63 based on a 5-year earnings growth rate of 14%.  But the growth estimate for next year is –12.5%, so I see the potential for a stock price drop between now and when the end-of-year dividends are paid out.

Refiners are also profiting from US law which allows for the export of refined products but not US crude.  That law could change before the end of the year.

Qout

(aka John Stolberg)
Thanks John!

PS During our Suite101 days I signed my posts with "Kirk out"

WTIC Oil Price vs XLE, S&P500 and US Dollar

For more prices, see Crude Oil -  Crude Oil ETFs

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Short Squeeze on Oil

One great advantage of writing an investment letter and moderating several investment discussion forums is I get ideas and research via email from my readers to consider.  Some give me permission to publish what they send me and use their names and others ask me to keep their contributions anonymous.

This commentary is from a long-time reader and newsletter subscriber, who has been a friend and contributor way back to my  "Personal Finance and Investing" days at Suite101 back in the early 2000s.   Trekkies will get a chuckle from his signature.

-------- Forwarded Message --------

Subject:	Short Squeeze on Oil
Date:	Wed, 6 May 2015 14:24:10 -0500 (GMT-05:00)
From:	John Stolberg <qout@....>
To:	Kirk Lindstrom

Kirk,
Oil spiked up today on the first US crude inventory drawdown in a long time. However, a closer look at the data shows that US imports of crude last week hit an 18-year low. While the trend lower for imports is true, last week's data was an anomaly. Less crude was offloaded from tankers, so some had to be drawn from inventory.

Oil is up significantly since the retest of the low I predicted. A correction is possible. The spike today probably took out some of the short sellers, but I don't trust the bulls to carry this market higher. If invested in oil, a fairly tight stop-loss would seem to be prudent.

I'm just making observations, not giving investment advice., and I tend to be early.

Q_out

(aka John Stolberg)

Thanks John!

PS During our Suite101 days I signed my posts with "Kirk out"
PSS John sent me this on 5/6/15 but I only now (7/9/15) had time to publish it.  Click John Stolberg to read his most recent article.

WTIC Oil Price vs XLE, S&P500 and US Dollar

For more prices, see Crude Oil -  Crude Oil ETFs

Bakken Head Fake and the June Fracking Frenzy

One great advantage of writing an investment letter and moderating several investment discussion forums is I get ideas and research via email from my readers to consider.  Some give me permission to publish what they send me and use their names and others ask me to keep their contributions anonymous. 

This commentary is from a long-time reader and newsletter subscriber, who has been a friend and contributor way back to my  "Personal Finance and Investing" days at Suite101 back in the early 2000s.   Trekkies will get a chuckle from his signature.

On 4/17/2015 5:33 AM, John Stolberg wrote:

Dear Kirk,

Well completions in North Dakota have been delayed by both the drop in oil price and state limits on natural gas flaring.

Drillers have completed wells in the Bakken faster than they can get them connected to natural gas pipelines.  The state is trying to bring flaring of the unconnected natural gas under control.  In January, the requirements for natural gas capture rose from 74% to 78%.   Some well completions have been delayed while the collection pipelines get built out.  

• http://thebakken.com/articles/933/north-dakota-oil-production-declines-for-first-time-in-a-year

Secondly, most of the oil from shale wells comes in the first year, so oil companies have been delaying well completions until oil prices rise.  Well completions can be delayed by up to 12 months because state regulations give oil companies up to one year to complete their drilling.

Both factors have built a backlog of uncompleted wells in North Dakota that is now near 1,000.  All those uncompleted wells have resulted in a drop in North Dakota oil production in recent months.  But that list of wells drilled but not fracked, (the so-called "fracklog") may diminish in June.

That's because North Dakota's oil extraction tax has a low price trigger.  If the monthly average West Texas Intermediate oil price drops below $55.09 for five consecutive months, the 6.5% state extraction tax is suspended.  Oil prices in January, February and March were below the $55.09 trigger.  April's average so far is also below the threshold.  If May prices also hold below $55.09, expect a fracking frenzy in June.  

• http://blogs.platts.com/2015/03/20/tax-time-bakken-oil-summer/

Q_out

(aka John Stolberg)

Thanks John!

PS During our Suite101 days I signed my posts with "Kirk out"
PSS John sent me this on 4/17/15 but I only now (7/9/15) had time to publish it.  Click John Stolberg to read his most recent article.

OIL ETF Disappoints Oil Investors

The exchange traded fund (ETF) for oil, "iPath S&P GSCI Crude Oil Total Return Index (OIL ETF Charts), " is a huge disappointment for Oil Investors who wanted a fund that mirrored the price of oil without having to buy oil futures.

• Crude Oil Price Charts
  
  
• Crude Oil ETF Charts

Since the start of 2009, the price of oil has surged 60% while the OIL ETF is essentially flat at only up about 4%!

click chart courtesy of stockcharts.com for full size image

On the chart,

• WTIC is "West Texas Intermediate Crude - Continuous Contract"
• OIL is "iPath S&P GSCI Crude Oil Total Return Index"

Over the life of the fund, OIL has underperformed the price of oil considerably.

click chart courtesy of stockcharts.com for full size image

According to etfconnect.com, the "iPath S&P GSCI Crude Oil Total Return Index ETN (OIL)"

The Fund is a sub index of the Goldman Sachs Commodity Index. The Index reflects the returns that are potentially available through an unleveraged investment in the West Texas Intermediate crude oil futures contract.

Not only does OIL under perform the price of oil, but investors had to pay an expense ratio of 0.75% a year do do so.

Unless you are an investment professional, I do not recommend investing in oil via the futures market. The leverage in futures can quickly wipe you out. With the recent data comparing the OIL ETF with the price of oil, I won't be recommending that as an investment in the price of oil either.

More Information:

• Crude Oil Price Charts
  
• Crude Oil ETF Charts
  
• Full List of Kirk's Favorite charts

.

OPEC says action needed to avoid huge oil glut

Tuesday October 21 2008: OPEC says action needed to avoid huge oil glut
The world faces a huge oversupply of oil next year should production continue at current rates, OPEC's secretary general Abdullah al-Badri said on Tuesday, as his organization prepares for an emergency meeting to discuss output cuts.

• More Charts of Crude Oil Prices
  

"If things stay as they are, there will be a huge excess of supply in 2009," Badri told a news conference a few hours after arriving in the Russian capital.

Our good friend (HA HA) Badri also launched an attack on British Prime Minister Gordon Brown and unnamed officials in the United States for creating the global financial crisis, and said OPEC was powerless to stop its effects around the world.
"We don't have the ability to bail out the financial crisis created by Mr. Brown and others in the United States," he said. "Everybody will feel the heat one way or another of the financial crisis. The Chinese are the least likely to be affected."

Inflation Adjusted Oil Prices Fall on Strong US Dollar

Oil prices (charts) have fallen $75.52 or 52% since peaking in early July of this year.

Click chart courtesy of stockcharts.com for full size image

This chart from "Chart of the Day" puts the decline in perspective. When adjusted for inflation, oil prices are now lower than they were during the Iran crisis and just after Hurrican Katrina spikes.

$WTIC = West Texas Intermediate Crude

Some on TV say the spike in the price of oil was driven by speculators, but this chart shows the weak dollar was also responsible.

Now that the global stock markets have melted down, investors around the World are seeking safe haven in short term US Treasury notes which is helping the dollar rally.

It appears the weak dollar pushed oil prices to the low $100s. Then trend followers and clueless speculators pushed it higher, which is normal in a free market.

Now that the speculators have fled and the dollar is stronger, the price of oil has fallen to just below the low end of the range expected by well known oil industry analyst Charlie Maxwell. See:

• Charlie Maxwell Says $300 Oil Inevitable: Charlie predicts oil prices between $75 and $115 for awhile. After that, he sees prices soaring again.
  
  
• More charts of Oil Prices
  

.

Charts of US Dollar, Oil Prices, Gasoline Prices and S&P500

This graph shows the US dollar has rallied to a 1-year high (vs. the Euro), oil prices (WTIC) currently $100.87 per barrel, are down 31% since peaking at $145.66 earlier this year while the S&P500 trading at $1225 (more charts of S&P500) remains at bear market levels.

Click chart courtesy of stockcharts.com to see full size image

Consumer sentiment should improve now that gasoline prices are down significantly as this chart of gasoline prices, oil prices and the S&P500 shows.

With oil prices off 31% and companies like Federal Express (FDX) announcing higher earnings expectations largely due to lower fuel costs, can a rally in the S&P500 be far away?

==> More Oil Price Charts <==

For more information, see "Stock Market Returns After Oil Prices Double in a Year or less"

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Charlie Maxwell Says $300 Oil Inevitable

Charles (Charlie) Maxwell, Senior Energy Analyst at Weeden & Co., told Barrons he thinks $300 oil is "inevitable." With three or four new Saudi oil fields coming on line soon, Charlie thinks supply and demand are roughly in balance for the next two years. Charlie predicts oil prices between $75 and $115 for awhile. After that, he sees prices soaring again.

Chart courtesy of stockcharts.com

More charts of Crude Oil Prices

Other key comments from the Barrons interview:

Natural Gas:

• "Its supply should last another 40 or 50 years before it runs into the same problems of peaking that we have in oil. "
• "Natural gas has a very low carbon footprint, meaning it's a cleaner type of energy, and it has wonderful petrochemical adaptability. "

On Hubbert's Peak:

• "(He) said that we would reach the limit of domestic production of oil in the continental United States in the early 1970s.... and he was correct"
• "He thought the American public would never be stupid enough to fall for the concept of foreigners continuing to give us all the oil that we wanted."

More on $300 Oil:

• "We will see $300 a barrel -- or roughly $250 in today's dollars -- because oil supply will be so short. "
• "That ($300 oil) will be in 2015."
• "But even earlier, around 2010, more than 50% of the non-OPEC world will have peaked in its production of oil so the dependence on OPEC will become extreme. That will give OPEC a chance, I'm afraid, to lift prices rather more quickly on us than they are doing today."

==> More Oil Price Charts <==

==> Very Best CD Rates with FDIC <==

The above summarizes an article in the Monday September 8, 2008 Barrons (available today, Saturday September 6) titled "What $300-a-Barrel Oil Will Mean for You" By Lawrence C. Strauss.
Article Subtitle: "AN INTERVIEW WITH CHARLES MAXWELL: He correctly predicted the recent price spike -- and he sees an eventual move to around $300 a barrel."

$80 Oil? Inflation Adjusted Gasoline and Oil Charts Suggest Odds are Good

The graphs of inflation-adjusted gasoline prices and the price of oil (more oil charts) below are good news for the global economy. Prices for both gasoline and oil could continue to fall as the global economy slows. The best news is technical analysis indicates the prices of oil could fall a lot more, perhaps into the $70s if the "Head-and-Shoulders Top" reversal pattern now in play resolves to its price target.

Chart courtesy of www.chartoftheday.com

The chart below of oil prices vs the S&P500 shows the price of oil has completed a "Head-and-shoulders reversal," very important reversal pattern for those who practice technical analysis.

If you look closely at the above chart of oil prices, you can see two head-and-shoulder (H&S) patterns have formed what I've coined a "compound head-and-shoulders pattern." A compound H&S patterns in one H&S pattern inside another. I show the neckline for H&S#1 at $121. You can see this neckline breakdown was tested from below while forming the right shoulder of a second H&S pattern with a neckline at $111.

A reason to be bearish on the price of oil (expect declines to continue) is three key support levels have been broken. These are:

1. H&S #1 at $121
2. H&S #2 at $111
3. The 18 month uptrend support (dashed blue) line also at about $111.
   

The H&S patterns project oil will drop into the $70s and $80s while the point-and-figure chart projects $96, a good 10% lower than were oil was yesterday at the close.

More on "Head-and-Shoulders" chart patterns


The Bible for technical analysis, Technical Analysis of Stock Trends, by Robert Edwards and John Magee, covers the "Head-and-Shoulders" chart pattern in Chapter six (starting on pg 59)

Note, "Edwards and Magee" states the neckline has to be broken for the reversal pattern to be in play with the target price. They say about 20% of patterns break the neckline with the proper volume attributes, flounder about for a bit, then return to higher levels to negate the reversal pattern.

As with all Technical Analysis, it would be a science rather than an art if the patterns were 100% reliable.

Conclusion:

Today the economy is suffering from inflation from high oil prices plus an economic slowdown in large part due to higher energy costs sucking spending power from consumers and business owners. This has thrown the market averages into bear markets.
If oil prices continue lower to to $70s, $80s or $90s, then consumers and business owners will have more to spend. If the credit markets can work out their issues, then consumers and business owners will have access to low cost money again too. More money to spend should help the markets recover in the long term. Thus, I've been using these major sell-offs as time to add to equities in my "newsletter explore portfolio" and my personal portfolio too. While writing this article, I added to one of the stocks covered in my newsletter. I bought just minutes after I got word from a program that monitors the SEC that two insider buys were made on a stock I wanted more of.

Crude Oil Testing 2008 Support Levels

This chart, courtesy of Chart of the Day, shows the current trend of West Texas Intermediate crude oil (WTIC) was up and the price was testing support two days ago.

Click charts to see full sized images

The last two days oil has rallied over $10 from $135 to its current price of $145.48!


If oil holds support and rallies to new highs, then a point and figure chart courtesy of Stockcharts.com, projects $172!

If oil breaks support (the green line on the first graph) then we could expect oil to find minor support (via PnF chart above) at $118, $110 and $99.

This chart suggests support for oil prices at $100 and then major support at $80. Destroy enough demand for oil with a global recession or increase supply by drilling for more oil or with a serious effort to bring alternative energy sources online and the next major support level is $37!

Let us look at the US Dollar to get a clue which way oil will go on the long term.


It appears the US Dollar has stopped its decline since bottoming earlier in the year. Perhaps we will see a reverse of this decline if the Fed raises rates a symbolic 25 or 50 basis points to show it is serious about fighting inflation.

This next chart, courtesy of clevelandfed.org, shows 50% of people think rates will remain at 2.00% through September and over 25% think rates will be higher.

This greater than 75% expectation that the Fed will not cut interest rates further has given the dollar reason to stop falling. For oil to continue to rally exponentially means it is doing so without the aid of a falling dollar.

Note: I am only saying what the charts show as major resistance and support levels. I am not predicting these prices!

How Many Barrels of Oil Will One Ounce of Gold Buy?

Crude Oil Price in Gold: This chart shows the price of oil ($WTIC), the price of gold ($GOLD) and the number of barrels of oil one ounce of gold would buy for dates between January 1990 through today.

Currently, one ounce of gold will get you 6.68 barrels of oil.

I think the chart makes it quite clear why Saudi Arabia and some others think oil is too high.

When Bill Clinton was president of the US, one ounce of gold could buy between 7 and 28 barrels of oil with the lowest ratio, 7.23 barrels of oil for one ounce of gold, occurring shortly before his last day in office.

It is interesting that during President Bush's term (following Bill Clinton) one ounce of gold bought between 6 and 16 barrels of oil with the lowest number of barrels per ounce in 2005 at 6.15. At today's record high prices for oil, we get slightly more barrels of oil (6.26 vs 6.15) for an ounce of gold!

Also of note is the 19 year support line indicates we are near an extreme level again.

Here is the same chart with the US Dollar ($USD) index added.

If the dollar has bottomed and we can make it go up again, perhaps with an energy program that does not send trillions of dollars to OPEC and higher Fed Funds rates, then US consumers could get some relief at the gas pump.

Discuss this article at our "Investing for the Long Term" facebook forum called "Energy, Oil prices, Alternative Energy, etc."

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Inflation Adjusted Gasoline Prices at Record Levels; China Raises Energy Prices

Gasoline prices have nearly doubled in less than a year. That is only half the story. This chart, courtesy of StockCharts.com, shows oil and gasoline prices have more than tripled since January 2005!
This chart shows that the share prices for the major oil companies have risen right along with the price of energy.

Our pain at the pump has been their gain, which may explain the bad feelings towards the oil industry.

One reason oil prices have continued to go up despite higher prices that are supposed to lower demand is some countries like China set prices that force their refiners to sell gasoline at a loss. It works out as a government mandated subsidy for consumers and industry. Yesterday China raised fuel prices to curb demand.

• June 20 (Bloomberg) -- China, the world's second-biggest oil-consuming nation, unexpectedly raised gasoline and diesel prices by at least 17 percent and increased power tariffs to rein in energy use, potentially driving up inflation.

  The record price increase, the first since November, may ease refining losses at China Petroleum & Chemical Corp. and PetroChina Co., who have been forced to sell fuels below cost. The companies' shares rose in Hong Kong trading.

This chart, courtesy of StockCharts.com, shows oil and S&P500 prices.
This chart, courtesy of Chart of the Day, shows gasoline prices adjusted for inflation.

Of Note on the chart:

1. After adjusting for inflation, gasoline prices are at record highs that are 18% above the old inflation-adjusted peak of 1981!
2. Gasoline prices are above a trend channel (see red line) that has been in existence since early 2000.
3. Large spikes in oil prices are often followed by recessions.

The days of cheap energy are probably gone but as major users of gasoline, such as China, allow prices consumers pay to go up, we should get some relief from the relentless price hikes for energy.

Bubbles: Nasdaq vs. Homebuilders vs. Oil?

Somebody posted this chart with no attribution in a forum I read. It compares the price percent change over time for the NASDAQ, homebuilders and Oil. We know with 20:20 hindsight that the Nasdaq and homebuilder stocks were in a bubble that popped with a huge bang. Will oil suffer the same fate allowing soccer moms to shuttle their kids to and from school in big SUVs again? I think not but I better on oil continuing to go higher and higher is a dangerous game.



The chart probably goes with the following article that I've excerpted below:

When will the bubble burst ... or will it.
Isaac Newton On Oil...
by Alexander Green, Chairman, Investment U
Investment Director, The Oxford Club

Dear Investment U Reader,

Nearly two months ago I wrote a column asking "Is Oil Becoming the 'Mother of All Bubbles.'"

Personally, I don't think it is. Even though oil has since hit several new records, some bubbles are just hard to beat.

In 1623, according to Charles Mackay, author of "Extraordinary Popular Delusions and the Madness of Crowds," a single tulip bulb changed hands for a thousand Dutch florins. (The average annual income in Amsterdam was 150 florins at the time.) Within a few years, tulip bulbs were traded on numerous Dutch exchanges. Some traders even sold tulip bulbs they had just planted or those they only intended to plant. (Tulip futures contracts, in other words.)

We all know how the famous Dutch tulip bulb mania ended. Fortunes were lost. Thousands of Dutchmen ended up financially ruined.

In 1720, an English firm - the South Sea Company - was granted a monopoly to trade with South America under a treaty with Spain. The primary product? West Africans sold into slavery. This seemed like such a good deal - even though the company made little actual profit - that shares rose more than ten-fold in a single year.

When Sir Isaac Newton was asked how high South Sea stock might eventually go, he replied, "I can calculate the motion of heavenly bodies, but not the madness of people."

Good answer. The stock soon collapsed and thousands of investors were wiped out.

With these classic bubbles in mind, let's take a dispassionate look at today's oil market.

There is a disconnect when supply goes up, demand goes down and prices continue higher. This often happens in the late stages of a bubble where higher prices are what cause higher prices as people find ways to fool themselves into jumping in just before a crash.

Oil demand in the United States is actually down 2% so far this year. According to the federal Energy Information Administration, high prices and a weak economy will knock down U.S. oil consumption by 90,000 barrels a day in 2008.

The situation is similar in other parts of the world. The International Energy Agency (IEA), the Paris-based energy watchdog of the world's richest nations, recently lowered its forecast for world oil demand growth by 460,000 barrels a day. The IEA also sees supply from outside OPEC growing by 815,000 barrels a day, the strongest growth since 2004. (And this was before Saudi Arabia's recent promise to boost production by a million barrels a day.)

Chart of Oil Prices has gone "parabolic."

Yet despite these decidedly bearish developments for oil, the price is up 51% since January 1 - and more than 700% since trading at $17.45 a barrel in November 2001.

Some will argue that this price rise is fully justified. After all, most of the world's major oil deposits have already been discovered. The low-hanging fruit has been picked. The remaining oil supplies are tough to get at - and expensive to recover.

Meanwhile, the world's demand for oil keeps rising as more people around the globe - especially in emerging giants like India and China - pound the table for "more juice."

This story is essentially correct. But it is just a story - and a thoroughly well-known one at that. It is not a rationale to buy oil today.

Especially since high prices always sow the seeds of their own collapse. Consumers start to conserve. Producers search for oil that was once too costly to extract. Supply and demand come back into balance.

According to Stephen Schork, President of Schork Group, a firm that advises the Organization of Petroleum Exporting Countries, "There's nothing different between this mania, the dot-com mania, the real estate mania, the Dow Jones mania of the 1920s, the South Sea bubble and the Dutch tulip-bulb mania. History repeats itself over and over and over again."

This is probably the reason OPEC is not spending large sums of money to increase supply. They are much better off to get all they can for their oil before the bubble crashes. Why spend a fortune to increase capacity that comes on line as soon as the US switches to hybrid or plug-in electric cars charged by nuclear power plants at night.

Yes, speculative fever has gripped the oil market. This bull is likely to end up just like those in the ring in Mexico City. Current oil prices are simply unsustainable.

That doesn't mean that oil is going to plunge today or tomorrow. Indeed, it could keep rising for quite some time. After all, you cannot make a rational judgment about when irrational behavior will end.

But oil prices will come back down. And that will be positive for both the economy and the stock market.

If you have big profits in your energy stocks, consider paring back. Or at least running your trailing stops closer to better protect your profits

Of course, history never repeats itself exactly the same way. We may not be at the exact inflection point.

But ask yourself this: If Isaac Newton were around, would he be buying oil today?

Think about that. And govern yourself accordingly.

It seems like good advice to me.

Here is a link to Investment U for more of their work

Buy Airlines or FedEx if you Think Oil Prices Have Peaked

Oil prices fell today on inventory news that should have been very bullish. Often tops and bottoms occur when stock price action diverges with the news, like we saw today.

This article explains some methods that should profit from falling oil prices without the risk of shorting futures or even the need to open a futures account.

First, do you think Oil prices have peaked? Do you think gasoline prices peaked near Memorial Day, the traditional start of the summer driving season? Gasoline prices here in California often peak on Memorial Day.

If you answered yes, then one way to trade this belief is to buy airline stocks. The chart below shows airline stocks have fallen faster than oil prices have gone up.

The graph shows XAL (the AMEX airline index,) American Airlines (AMR), Southwest Airlines (LUV) and United (UAUA) have all fallen far more than oil prices have doubled since December 2006. To remove the specific stock risk of an airline going under, I'd buy the exchange traded fund, XAL.

Alternative Idea: Short First Solar (FSLR Key Statistics) if tight stops take you out 2% below my dashed blue support line.

If someone put a gun to my head and asked me to recommend a stock to short to take advantage of falling oil prices, it would be FLSR with an 8% stop loss and a target to cover of about $125 where it would have a PEG of 1.0 if you believe a company can grow at 45% a year for five years. A company with a $20B market cap will have a hard time growing at 45% a year without a ton of competition attacking their margins. Also, the current price already reflects near perfect execution of a very bright future. I'd look for a 50% gain (50% price decline after breaking support) for an 8% risk.

If you own solar stocks, then you may also want to put in very tight stops and consider going short if support is taken out. Some of the solar stocks are trading years ahead of fundamentals much like NASDAQ stocks were in March 2000. First Solar may have made a double top or it could find support at the 200 day moving average, but at 34 times sales, a PE of 102 and a PEG of 2.0 on a 45% growth rate, it is not cheap and would not be cheap even at half its current price of $256.

Shorting FSLR with an 8% stop loss could be safer than owning airlines. All are risky trades that nobody should attempt without using stop losses to protect you should you be wrong on the direction of oil prices.

Go long FedEx for a safer investment: Even if oil prices go down, airlines have never been a very profitable business for shareholders. You may want to own a stock like FedEx (FDX) instead.

It has been much easier to make profits transporting packages than people who may put bombs in their shoes or box cutters in their carry-on luggage. FedEx should also benefit from high oil prices in the long term as more people will shop on the internet to save driving. Even if oil prices remain high, FedEx will eventually raise prices and return to growing profits. Airlines wish they could remember what it is like to be profitable.

Not a recommendation!

I am not making a recommendation here to short FSLR or to go long airlines. This is a "how to" article for those who are looking for ideas. I believe there are "safer" ways to make money. I prefer taking my high risk with technology stocks rather than airlines that have never been good investments. My speciffic recommendations are in "Kirk Lindstrom's Investment Newsletter" where I have profited on rising oil prices with other investments like VLNC (see "Valence Technology: A Green Stock with Potential") that I've taken profits on and have stops in to protect gains already similar to what I recommended for FSLR investors who have great gains now.

Disclaimer: I am long FDX with very large gains from buying long ago when I correctly guessed it would benefit from internet commerce. FDX has corrected significantly on the economic slowdown combined with jet fuel going up faster than they can increase fuel surcharges. If oil falls in price and the economy starts to grow again, FDX would see a 33% gain just getting back to the highs it hit many times in 2006 and 2007.

To find out how I've profited greatly from these difficult market conditions, subscribe to "Kirk Lindstrom's Investment Newsletter" today!

• Since 1/1/1999 through 5/28/08 my "explore" portfolio is up 196% while the S&P500 is only up 30% and Warren Buffett's Berkshire Hathaway is only up 83%
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Chart of US Dollar vs Oil Prices vs S&P500

Some people on TV are blaming the Federal Reserve's easy money policy for the record prices for oil.

Sept 11, 2008 Update with charts

The chart below of the US Dollar vs. the price of oil (WTIC) vs. the S&P500 shows between early 1995 and January 2002 the US dollar gained nearly 50% when it went from just over 80 to 120 while oil prices were volatile but flat to higher.

Click chart to see it full sized

For more information, see "Stock Market Returns After Oil Prices Double in a Year or less"

If a falling dollar makes oil more expensive, then you would think a gain of 50% would make oil cheaper. As the chart shows, it is not that simple as oil prices went up considerably between the mid 1990s and the early 2000s but for a brief dip under $20 during our short recession in 2001.

For sure a falling dollar makes importing oil more expensive but it is not the main reason oil is so expensive. Oil is going up because supply is limited and demand is growing. A falling dollar simply makes us less competitive bidding for oil against other countries that have growing economies with stronger currencies.

If we want lower energy prices, then we need to

• increase supply
• Find more oil in other countries that are willing to ship it now
• Drill where we know there is oil in the US such as ANWR and off the coast of California and Florida.
  .
• lower demand
• drive more hybrids and PEVs,
• drive less by combining trips and car pooling
• take the bus
• take vacations closer to home
  .
• Strengthen our currency so our dollars buy more relative to others currencies
• Raise the Fed Funds Rate
• Eliminate deficit spending
• Grow our economy

None of these solutions are painless but we must do all or some of them unless we want to transfer the great wealth our nation has accumulated in the past 200 years to others in a single generation.

To find out how I've profited greatly from these difficult market conditions, subscribe to "Kirk Lindstrom's Investment Newsletter" today!

• Since 1/1/1999 through 5/28/08 my "explore" portfolio is up 196% while the S&P500 is only up 30% and Warren Buffett's Berkshire Hathaway is only up 83%
  .
• Subscribe TODAY and get the May 2008 issue for FREE!
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• Newsletter (pdf) Story about my success

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Stock Market Returns After Oil Prices Double in a Year or less

As of Friday's close, oil prices are up 103% in the last year. Investments that have done well with rising oil prices were correctly predicted in the book "The Oil Factor."

==> More Oil Price Charts <==

I was given the book, "The Oil Factor" back in Feb 2004 to review and perhaps add it to my recommended reading list. I liked the book so I had it on my recommended reading list for several years and I recommended it in my writing.

In "The Oil Factor," authors Stephen and Donna Leeb said if oil doubles in any 12 month period, then the best the markets have done 18 months later is a 4% gain and the worst is a 27% loss. Here are more 18 month S&P500 market returns over the next 18 months after the specified oil price changes:

Oil prices (red)& the S&P500 (1973-2003)
12 month price change: S&P500 18 months later
Oil up >100%: -27% to +4%
+50 to 100%: -11% to +17%
*25 to 50%: -7 to +25%
0 to +25%: -3 to +21%

The Leebs predicted higher oil prices and inflation were in our future, suggested the overall stock market could see trouble making large gains and suggested some investments they thought would do well with oil prices going higher and higher. They even suggested that gold could reach $1000 from its then price in the low $400s! (See Ch 12: "We even think it could reach $2,000)


"The Oil Factor: Protect Yourself AND PROFIT from the Coming Energy Crisis"
by Stephen and Donna Leeb
(Feb 2004)

Worth the price of the book for the historic data in a bar graph on pg 17, Ch2.

Their recommended assets included energy stocks, that included REITS for inflation and Warren Buffett's BRKA, have done quite well.

Obviously, the oil companies and gold have been great investements since their book was published in Feb. 2004.

I made good gains buying GeoGlobal Resources (GGR $3.27) in 2004 between $0.95 and $2.25. GeoGlobal is a Canadian natural gas driller operating in India. I took massive profits in 2005 selling most of my shares all the way up to the mid teens ($13.65) before GGR collapsed so I got my energy profits front-loaded (I took enough profits to buy a Prius or two) but the slow, steady gains in the energy stocks the Leebs recommended in their book have done great also.

Note: I have recently started to repurchase shares in GGR with the most recent newsletter and personal purchases on 4/2/08 at $2.65. (GeoGlobal discovered the largest natural gas field in deep water off the shores of India. The stock soard on the news. Delievery to customers was delayed significantly so the price collapsed back to prediscovery levels, where I hope it is an incredible bargain.)

I also own and have recommended REITS as a core position in "Kirk Lindstrom's Investment Newsletter" since early 2001. REITS have done very, very well as an inflation hedge. Vanguard shows $10,000 invested in their REIT index fund on 1/1/2001 is now worth about $30,000.

The above chart doesn't show the dividends reinvested. REITs currently pay an effective yield of 4.15%. For the last 5 years, VGSIX has averaged 18.17% a year through 4/30/08!

Now we should read:

The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel
by Stephen Leeb and Glen Strathy
(February 21, 2007)

Product Description: Stephen Leeb shows how hard times can be a boon for smart investors. As the world faces an energy crisis of unprecedented scope, renowed economist Stephen Leeb shows how surging oil prices will contribute to an economic collapse. With meticulous research and analysis, Leeb shows that due to strong competition from India and China, prices could soon double, a cost for which most countries and investors are ill-prepared. Now, in this groundbreaking book, Leeb not only shows how this crisis will affect consumers, but how savvy investing can turn these dire times into financial gain.

He was right, oil prices did double and the S&P500 has struggled.

Click to view the full sized chart showing the price of oil plotted against the S&P500 from 1990 through Friday May 23, 2008.

To find out how I've profited greatly from these difficult market conditions, subscribe to "Kirk Lindstrom's Investment Newsletter" today!

• Since 1/1/1999 through 6/30/08 my "explore" portfolio is up 175% while the S&P500 is only up 20% and Warren Buffett's Berkshire Hathaway is only up 71%
  
  
• Subscribe TODAY and get the September 2008 issue for FREE!
  
  
• Newsletter (pdf) Story about my success

Don't delay!