THE OIL BEAR MARKET IS ABOUT TO ENDING
Crude
oil and energy stocks are tricky to navigate in a situation like this
where the equities market is nearing a bull market top.
It
is critical to remember that when the US stock market turns down and
starts a bear market virtually all stocks and commodities will fall in
value including oil and
energy stocks. Investors need to understand that even though the price
of crude oil is nearing a bottom it could and will likely stay low for a
considerable amount of time “IF” the stock market turns down.
Over the last 100 years we have seen nearly thirty 30 bear markets. The average length of a bear market is 18 months and
has an average decline of 30%.
I
do feel currency problems and a war breakout will be bullish for both
oil and gold. So if we get a bear market in equities, and a war oil and
oil should rally while stocks in general fall.
But
if we do not have those sever crisis’ then if gold and oil break below
their critical support level which is the red line on the charts and a
bear market in stocks start you do not want to be long stocks or
commodities.
PRICE CHART OF OIL
The
chart below shows the line in the sand for the price of crude oil. If
this level is broken with a monthly bar close below $43 per/barrel I
think $30-$33 will be the next stop
and the low for the oil market. It seems everyone is bullish on precious
metals and have been buying like crazy.
The points I made about gold which I talked about in PART II should be reread because if the support levels are broken oil will fall 40%, and gold another 35% from their current prices.
Below
are some ETFs that takes advantage of rising oil prices. While there
are other funds that cover oil stocks I feel they may not perform well
during the equities bear market. Investing in physical oil is the best
play at this stage of the game but when the equities bear market looks
to be nearing an end,
energy stocks will be the best place to invest.
PART III - CONCLUSION:
In
short, I feel crude oil will has or will find a bottom within the next
couple months. Long term the value is great, but we must be aware that
if equities start a bear market it will be best close all equity
positions and wait for the bear market to subside. When the time is
right investing in crude oil and energy stocks which pay high dividends
will generate life changing gains and an income stream. Patients is the
key.
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