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The One Sector to Buy Right Now

By Jeff Clark
Tuesday, March 3, 2009

Nobody rings a bell at the bottom of a bear market. But when it comes to oil stocks, Quasimodo is dangling from the end of the rope in Notre Dame's bell tower.
 
The AMEX Oil Index (XOI) is down 25% so far this year, and it's 55% lower than when I warned you oil stocks were peaking last year. By the look of the following chart, however, oil stocks are approaching the end of this downtrend...
 
 
 
This is a chart of the bullish percent index for the oil sector (BPENER). It's a terrific measure of overbought and oversold conditions. Oil stocks are overbought when the chart rallies above 70, and the sector is oversold when it drops below 10.
 
Trading off this indicator alone would have generated large profits over the past several months. Just look at how the buy and sell signals off the BPENER lined up with XOI...
 
 
 
As the index tests the 765 line for the third time, the bullish percent index has dropped below 10. So oil stocks are setting up for a pretty decent rally from current levels. And the recent decline provides traders with a low-risk opportunity to jump into the sector.
 
If "the third time's the charm" has any meaning at all, then oil stocks are as charming as a fairytale prince holding a glass slipper.
 
We probably won't have too many opportunities to profit buying stocks this year. So we need to take advantage of favorable risk/reward setups on the long side. You won't find too many setups that look better than the one we have right now in the oil sector.
 
BPENER gave us a great sell signal back in May 2008. Today's buy signal should be equally as impressive.
 
Best regards and good trading,
 
Jeff Clark




In The Daily Crux
Market Notes
Carnage... Dow drops below 6,900 for the first time in 11 years.
 
Billionaire Warren Buffett's investment vehicle, Berkshire Hathaway, hits five-year low.
 
Oil falls 10% in one day... back down to $40.
 
Earnings today... AutoZone, Bayer, MBIA, Vector Group.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1224.71 +0.3% +11.4%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.19 -0.6% +7.2%
Euro 1.34 +1.4% -11.0%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%