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A Safe Way to Net Double-Digit Gains in the Next 6 Weeks

By Jeff Clark
Monday, July 13, 2009

The oil market is a mess.
 
There's a glut of supply. Demand is suffering. The government is talking about cracking down on oil speculators. Who knows what the new cap and trade regulations will do to the industry? And the oil stocks have been crushed over the past month. The Amex Oil Index is down about 20% from its June 1 high.
 
I smell an opportunity.
 
Last month, we looked at the bullish percent index for the oil sector (BPENER) and determined it needed more time to give us a buy signal. Here's an updated chart...
 
 
BPENER is a momentum-based indicator that generates buy and sell signals based on oversold and overbought conditions. The oil sector is overbought when BPENER rallies above 70 and then turns lower. The four most recent sell signals are marked with red circles. Each signal was profitable for anyone taking a short position on the oil sector.
 
The oil sector is oversold whenever BPENER drops below 20. It generates a buy signal (the blue circles) when it turns higher from oversold levels. The last time we got a buy signal from this indicator, back in March, my Advanced Income subscribers took on three trades. Each of them generated at least a 25% return in just one week.
 
We are facing similar oversold conditions today.
 
Ideally, I'd prefer BPENER to drop below 10 before turning higher and giving us a buy signal. But as you can see from the rising gray trendline on the chart, last week's reading of 13.64 may be as close as we get.
 
Oil stocks are drastically oversold. BPENER hasn't turned higher yet, so we may not have seen the absolute bottom for the sector. But we're close enough to give us a low-risk trade for the next couple of months.
 
The overall market still has some downside action left before its correction is over. But oil stocks turned higher ahead of the market back in March. Given the drubbing they've taken recently, I suspect oil stocks will do the same this time as well.
 
Best regards and good trading,
 
Jeff Clark




In The Daily Crux Recent Articles
Market Notes
Corporate bonds enjoy amazing recovery... major bond ETF hits new 52-week high.
 
Oil slices through $60 on Friday... down 18% in the past month.
 
Silver suffers: Silver ETF down 21% since June 1... nearing 3-month low.
 
Earnings today... CSX, Fastenal, Novellus.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%