Option Investor

Dodging Dennis

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Are we having fun yet? The daily gyrations of the oil sector are giving us new highs followed by sharp declines on almost a weekly basis. The number of analysts calling for a return to $40 oil are almost equal now with those thinking $70 oil is inevitable.

The game this week is called dodging Dennis. If Dennis somehow skillfully manages to miss the oil fields in the upper gulf and slam Florida instead then oil prices are ripe for a decline. The speculation factor is enormous and a miss here could cause a blow off in prices. I continue to read that as a buying opportunity like I discussed last week.

Should Dennis target the Louisiana and Mississippi coasts and make landfall as a category five hurricane then $70 oil is entirely possible. If you remember last year hurricane Ivan slammed Florida and missed most of the Gulf oil platforms but still caused a 44 million barrel loss in production. Oil prices skyrocketed and fortunes were made. The latest track I have as of Friday night is for a northwest track right towards Louisiana. This would be too coincidental to even imagine given the Fox made for TV movie "Oil Storm", which hit cable several weeks ago.

This makes this week's commentary very simple. Ride the profits or buy the dip. That is the only two options. You should also read my market wrap in the Option Investor Newsletter where I discuss the remarkable turn of events in the Saudi oceans of oil front.

XOM must have read this article last week where I said I was going to drop it for lack of movement if something did not happen soon. XOM spiked nearly $3 on Tuesday to take itself off the endangered species list.

Everybody is transfixed on the price of August crude and $60 while the more important December contract continued to set new highs at $64 on Friday.

December Crude Chart - Weekly

Chevron can't get a break. Just when the political tide was about to wash away any chances for a successful CNOOC bid the Chinese company started talking about raising the price. What little shareholder rebellion had already started began to mushroom into a serious problem for Chevron. I had expected Chevron to raise the bid just before the vote but now it appears a bidding war may develop. Chevron should eventually be the winner but the price could be steep.

The oil spike to new highs triggered two new watch list plays at the breakout trigger. That is not where we really want to join the party but waiting for a real pullback can be lonely.

I do eat my own cooking so everyone can rest assured I may have positions in any stock mentioned at any time. I am in the same boat you are. I hate it when analysts on CNBC rave about a stock but then claim no ownership. If it is such a good deal why don't they own it?

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