Wednesday, December 17, 2014

6 Oversold Oil Stocks that Offer Huge Upside Potential: SDCJF, MAUXF, CAZA, MQLXF, BXE, AXAS

This Oil shock is the opposite of the usual suspect. Most assume that the promised Oil shock was on the upside ( Goldman Sachs- 2007 when oil was $137/barrel was calling for $200 oil!) We all would take a fraction of that price today ( $59.00 midday low on Dec 11th for WTI).

Is there a conspiracy that created this commodity crash that has happened with such speed and magnitude that if your head is still on your shoulders it may need altering with either Scotch , Vodka or maybe heroine!

Food for thought: We all know that the current administration hates fossil fuels. We all know that Iran is building a "bomb" and that Russia has invaded Ukraine & finally that by next year we will be the world's largest Oil producer in the world ( horizontal drilling ). This of course is a very troubling development for the largest Oil producer in the Middle East, namely, Saudi Arabia .  (more)

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CEMIG: CIG Brazilian Bargain?

Shares of the country’s biggest electric utility Companhia Energetica de Minas Gerais (CIG), or CEMIG, have fared far worse.
It has given up almost 35% of its value since the start of September and now trades at 4.7 times the company’s trailing 12 months’ earnings and less than 1 times sales. At these levels, the American depositary receipt (ADR) yields more than 7%.
CEMIG has also added transmission infrastructure and renewable-energy resources in late October, securing antitrust approval to buy half of a giant 676.2-megawatt wind farm.
With a debt-to-assets ratio of 31.7%, excessive leverage isn’t a problem, either. Rather, CEMIG’s stock is cheap because of what Brazilian regulators may do to address the hydropower-dependent country’s worst drought in 80 years. (more)

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An Epic Blowout In Crude

The FED’s easy money has encouraged rampant energy speculation and over-investment, resulting in more than $500 billion in new loans and investments in just the past 4 years. And so long as Crude prices stayed comfortably above $90, investments made money and everyone was happy. But once energy prices started falling, the decline quickly became a negative loop-back effect because the very high levels of leverage could not tolerate the move. Whenever asset prices fall in a highly levered market, there is often a sudden lack of liquidity to absorb the speculators’ need to unwind leverage, leading to desperation and fire sales. In the case of energy, the sudden disappearance of “investors” highlights just how speculative the underlying market had become.

It’s not exactly a Black Swan event, since Crude and other assets occasionally move with incredible ferocity. But to a highly levered and speculative population who chose to ignore the risks as being far too improbable to worry about, it’s a situation where debt cannot be offloaded at any reasonable price. At $55 bbl Crude prices, much of the new debt simply does not work, meaning that significant energy company junk bond defaults will occur. Although this is obviously bad for the energy complex, it also has very real implications for broader systemic risk. (more)

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iRobot Corporation (NASDAQ: IRBT)

iRobot Corporation designs, develops, and markets robots for consumer, defense and security, telemedicine, and video collaboration markets worldwide. The company operates in two segments, Home Robots and Defense and Security Robots. It offers consumer products, including floor vacuuming and washing robots, floor sweeping robots, and pool and gutter cleaning robots. The company also provides defense and security products, such as ground robots comprising 510 PackBot line of small unmanned ground robots; the small unmanned ground vehicle multi-purpose ground robots; the 110 FirstLook small, light, and throwable robot; and the 710 Warrior multi-purpose robot for carrying heavy payloads. It markets its robots to consumers through chain stores and other national retailers, as well as through its on-line store; and to the U.S. military, and other government agencies.
Take a look at the 1-year chart of iRobot (Nasdaq: IRBT) below with my added notations:
1-year chart of iRobot (Nasdaq: IRBT)
For the most part, IRBT has been trading sideways for the last 7-8 months. During that stretch the stock has had a tendency of creating key price levels at the increments of $2. For example, the current level of support is $34 (blue), and that level has been prior support and resistance in the past. Next, $32 (red) has popped up a couple of times. And of course, running across the bottom is the lower level of support at $30 (green).

The Tale of the Tape: IRBT is approaching its key level of $34. A long trade could be made at that level with a stop placed under it. A short trade could be made on a break below $34 with the expectation of a fall down to the next $2 level at $32.
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Oil’s Crash is Just the First Stage of the $9 TRILLION Implosion

The Oil story is being misinterpreted by many investors.
When it comes to Oil, OPEC matters, as does Oil Shale, production cuts, geopolitical risk, etc. However, the reality is that all of these are minor issues against the MAIN STORY: the $9 TRILLION US Dollar carry trade.
 Drilling for Oil, producing Oil, transporting Oil… all of these are extremely expensive processes. Which means… unless you have hundreds of millions (if not billions) of Dollars in cash lying around… you’re going to have to borrow money.
Borrowing US Dollars is the equivalent of shorting the US DOLLAR. If the US Dollar rallies, then your debt becomes more and more expensive to finance on a relative basis.
There is a lot of talk of the “Death of the Petrodollar,” but for now, Oil is priced in US Dollars. In this scheme, a US Dollar rally is Oil negative.
Here’s the US Dollar:
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