Oil eased off its highs but until we pass April 1st I am not expecting a big drop. Higher inventory levels on Wednesday could pressure prices again but I am expecting many funds to hold through the end of the quarter to prove how smart they were to invest in energy.
I am adding VLO, an independent refiner of sour crude, at $62 but with the refinery explosion I seriously doubt we will see it any time soon. I am adding Premcor (PCO), another refiner at $54.
If we do get a big drop in oil and we start to get some entries triggered I want
to avoid buying them all. After TWO energy stocks are triggered I want you to
lower all the entry points $2 on everything else. If TWO more are triggered then
lower the entry points $2 once again. Stop all entries at six energy positions.
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 - $105 Conoco Phillips ** Target $95.00 **COP dropped -$6 this week. When the real oil price drop appears we could easily get filled on COP at $95.
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 - $69.88 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 - $58.29 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 - $59.58 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 - $59.00 Exxon Mobil ** 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 - $42.05 Energy SPDR ** 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
PCO - $59.66 Premcor ** Target $54.00 **Premcor is an independent refiner with higher margins and upside potential from diversification.
BUY 2007 $60 LEAP Call VJE-AL
VLO - $72.27 Valero Energy ** Target $62.00 **Valero is an independent refiner that has made the switch to the higher profit margins of sour crude.
BUY 2007 $75 LEAP Call VHB-AO
GM - $29.30 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
CAL - $10.95 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
JBLU - $17.85 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