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With relative weakness in the XLE and oil at new highs I suspect we are about to see some sector rotation back into equities as the quarter ends. Q2 is the season demand low for oil and our last chance for an oil entry before year-end. Last year the dip came on March 24th and lasted about three weeks.

With the gains in oil this year I am expecting a much stronger drop but I would be very surprised if we broke the 100-day averages. That will be our target.

Juniper has lost a bid once again and I am dropping them from the watch list.

I am adding GM, JBLU and CAL for potential short entries on any drop in oil.

I dropped WMB due to the erratic chart compared to the other oil stocks.

Dropped Entries

None

New Watch List Entries
COP Conoco Philips
OXY Occidental Petroleum
CVX Chevron Texaco
UCL Unocal
XOM Exxon Mobil
XLE Energy SPDR
GM General Motors
CAL Continental
JBLU Jet Blue

Current Watch list

The oil stocks are listed for reference because the actual prices are so far away from where I would like to get an entry. I am hoping for a sharp correction when it comes and the spring demand slumps. The targets are above the 100-day averages but with the averages rising it is where I expect them to meet.

COP - $110 Conoco Phillips ** Target $95.00 **

Conoco is my first choice for an oil stock once the current trend eases. I would like to get an entry around the 100-day average now at $93 but rising. This has been a good support level in the past.

BUY 2007 $100 LEAP Call OJP-AT

OXY - $73.95 Occidental Petroleum ** Target $65.00 **

OXY would be my next choice with the same 100-day average as an entry point. That is currently $61.

BUY 2007 $70 LEAP Call VXY-AN

CVX - $60.38 Chevron Texaco ** Target $55.00 **

Looking for a new entry around the 100-day average currently at $55.

BUY 2007 $60 LEAP Call VCH-AL

UCL - $62.89 Unocal ** Target $50.00 **

Unocal is a takeover target and any dip would make it more attractive to a buyer. Target the 100-day currently at $47.

BUY 2007 $55 LEAP Call VCL-AK

XOM - $62.65 Unocal ** Target $55.00 **

XOM has larger reserves and more cash than any other oil company. They have to find something to do with their $28 billion and it will either be returned to the shareholders or used to buy more reserves.

BUY 2007 $60 LEAP Call ODU-AL

XLE - $43.76 Unocal ** Target $38.00 **

The XLE covers all the bases and the options are cheap. We will not get the same move in the XLE as an individual stock but it is much more steady.

BUY 2007 $40 LEAP Call ORJ-AN

GM - $28.61 General Motors ** Target $32 and $27 **

If oil declines GM could rebound and try to fill the gap at $34. I doubt it will make it. I am putting in an upside target and a breakdown target of $27.

BUY 2007 $30 PUT VGN-MF if $32 target is hit
BUY 2007 $25 PUT VGN-ME if $27 target is hit

CAL - $10.57 Continental Airlines ** Target 9.50 and $12 **

Same story as GM. If oil declines CAL could attempt to rally but the outlook is still bleak.

BUY 2006 $7.50 LEAP Put YFJ-MU if $9.50 target is hit
BUY 2007 $10.00 LEAP Put OVJ-MB if $12.00 target is hit

JBLU - $17.36 Jet Blue ** Target $19.50 and $16.50 **

If oil declines JBLU could attempt to rally but the outlook is still bleak.

BUY 2007 $15.00 LEAP Put VYO-MC if $16.50 target is hit
BUY 2007 $20.00 LEAP Put VYO-MD if $19.50 target is hit


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