The long awaited drop in oil prices has finally arrived. Oil fell to $50 and stalled on Wednesday and appears to be holding that level. We had two energy plays triggered and it was not the two I expected. The refiners VLO and PCO both fell off the cliff created by the refinery outages in the past month. Both had soared and I was beginning to think they would never come back to earth.
I also entered on the XLE as it was only a few ticks away from our entry point and as an index play should begin to rebound slightly before the individual stocks. Any 3-5 in the XLE could push it higher while the rest wander at support.
On the major oils, COP, OXY, XOM, we were not triggered but we are close. I lowered the breakout entries to a couple dollars over the current price and lowered the breakdown entries slightly just in case we get another leg down in oil prices. I would take them here but there is no reason to rush. Oil prices held at $50 for the last three days but oil stocks continued lower as funds sold to cover cash withdrawals by fund holders to make tax payments. I may be pressing my luck hoping to get a couple more dollars of drop on COP and company but even if we hit the breakout a couple dollars higher it is not a bad entry. It is up to you to decide when you enter and any entry here is dynamite compared to the highs from last month.
Just remember that there is no firm bottom. We could still drift lower as the Q2 demand slump allows inventories to build. Once gasoline production accelerates those inventories will shrink and the race higher will begin again.
I wanted to add Total Sa to the watch list but they have no Leaps. They have pulled back to their 100-day average and look like a strong buy as it has always held in the past. I looked at the options and November was the farthest month. The Nov-$115 looked good at $5.10. TOT was $122.75 just last month. I heard two analysts commenting that even at $120 it could rise $20-$25 and still be undervalued. If you want to play it that is the way I would do it. If you do play it let me know and I will post more "non leap" tidbits as I see them.
We (I) missed the DJX put entry last week by 21 Dow points. I was targeting
10550 and we only hit 10529. Close but no cigar. Hopefully some of you jumped in
anyway. I am dropping it for obvious reasons.
Current Watch List
COP - Conoco Phillips
COP - $100.03 Conoco Phillips
** Breakdown Target $98.00 **
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 $97 and rising. This has been a good support level in the past.
Breakdown entry: BUY 2007 $100 LEAP Call OJP-AT
OXY - $65.50 Occidental Petroleum
** Breakdown Target $63.00 **
OXY would be my next choice with the same 100-day average as an entry point. That is currently $63.50.
Breakdown target: BUY 2007 $70 LEAP Call VXY-AN (no $65)
XOM - $56.11 Exxon Mobil
** Breakdown 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.
Breakdown target: BUY 2007 $55 LEAP Call ODU-AK