U.S. Slips On Oil

Every now and then I like to take a step back and see how macroeconomic and geopolitical events are shaping our world. Currently, the biggest thing that concerns me is not the Fed and interest rates, but energy.

While investors and TV analysts waste their time arguing about a pause or no pause in rate hikes, an energy crisis situation is brewing…

• Tensions in the Middle East- ie, Iraq and nuclear weapons; Iran threats; Hezbollah. The U.S. is a bit nervous about these oil producing countries. But not to worry, we have our own oil in Alaska, right?…
• BP North Slope Shutdown- the largest oil field in the U.S. got shut down today due to corrosion. This sent oil up $2! Obviously, investors are nervous on the news, and they should be, because an event like this means the U.S.’s backup plan is falling apart.
• South America- great, just great… turns out Cuba has oil. Unfortunately, the U.S. has a strict embargo with that country so that doesn’t mean anything to us except frustration. Then there’s terrorist in South America who came up with the clever idea of disrupting oil production by attacking pipelines.

So, isn’t it interesting that many of the U.S. enemies have what we want- oil. I’m no oil expert, but I think it’s pretty obvious that if oil keeps trekking up, the market will be rough.

In the meantime, keep BP and BPT on your radar.

You’d probably scratch your head when you read Hansen’s earnings transcript then look at the stock price. After reporting pretty good numbers it just wasn’t enough for investors. Hansen missed by just a penny, sending the stock down hard.

Last Thursday I was very angry at Citi for downgrading the stock two days before earnings! I covered my short in HANS last week with the intent of shorting again on Friday to avoid a pre-earnings run. Citi sent HANS down a good $6 with there downgrade, making my re-entry point a very nervous one. Nevertheless, I stuck to my belief that HANS was way overpriced and was due for a correction. I still think Hansen will head towards the mid twenties, but I guess I’ll have to wait for their conference call to get a better feel.

Premarket futures are down. The Dow has some ground to make up as it is down about 30 points. You can blame it on Starbucks unimpressive report, Ford’s restatement of losses, Rambus’ patent infringement, air raids in Middle East. Or how about this- yesterday’s rally had no genuine catalyst, so maybe we’re due for a correction. Or maybe investors are bailing out before the weekend.

Portfolio Watch- here’s a little sample of resources I got. I don’t copy cat trade, but it’s interesting to see what other successful (?) investors are doing.

• [Actions Alert Plus] Cramer sold 1,300 FWLT @ 39.60; 1,500 MTU @ 13.70; 1,000 AL @ 46.92; bought 100 GS @ 148.80.
• [Kirk] – all cash
• [IceMan] Trades made 8/2… Short- WTW, GTRC; Long -NAT, BMD, LIFC, RTP QLD, STN ILF; the “iceman” is long South American stocks and is playing the earnings game with RTP reporting today.
• [Motley Fool Rule Breakers] – the community poll voted PDLI as best stock for new money (7/28/06). Another favorite is ISRG.

If you’d like to share a resource, post a comment.

That’s what I’m thinking. A lot of bombing and ugly stuff going on in the Middle East will keep investors conservative. That means a lot of going back to cash, shortening holding periods, taking profits on any positive day, and slimming portfolios just before the weekend.

The Set Up
Today’s trades will be focused on small cap energy companies, especially the ones that spike up on news of hurricane Chris, and deadly heat waves. There’s a double bull trap setup- 1) hurricane Chris is dying down and will not be our first hurricane, and 2) the sticky hot weather is expected to cease this Friday. What does this mean? The energy-hype will temporarily wane. Also be on the look out for earnings, since there will be a lot of oil companies reporting in the next few days.

The Trade
Short any energy stock that spiked out of trading range on the hurricane or heat wave news. If oil continues to fall, for example, below $75, short aggressively.

The Stocks
I don’t really track much, but here’s what I got:

• Blue Dolphin (BDCO) – this one is tricky. There has been a lot of accumulation in anticipation of earnings next week. Compare stock to Houston Exploration (THX) which reports in the morning.
• Streicher Mobile Fuel (FUEL) – heading back under $3 if oil drops
• Weatherfield International (WFT) – showed weakness Wednesday after stock jumped on an upgrade.
• Beacon Powercorp (BCON) – high risk, high return.
• Georesources (GEOI) – heading back under $8.

I’ve been hearing on the street that the past two days are routine consolidation after last weeks good week. If anything, it’s been choppy. Anyway, stocks rallied in the final hours Tuesday, which is a good sign for Wednesday (midweek). After Wednesday I expect a lot of conservative moves- a lot of selling will go on as investors feel less confident to hold a position over the weekend… a lot of crazy stuff happening around the world.

Anyway let’s see if the Nasdaq and Dow can extend their rally today, and see if it can hold after noon.

Unusual Action
There is a lot of volatility out there, which could be a good or bad trade depending on your timing. I have a list of stocks that are searching desperately for proper valuation. In other words, let’s try to profit from panic sellers and excited buyers. Click [HERE] for 5-day charts:

• Scottish Re Group (SCT) – dropped 80% after negative news Monday; rebounded 70% Tuesday after analyst upgraded stock for being oversold. Where will it settle Wednesday?
• Blue Dolphin (BDCO) – an energy stock sensitive to oil news. Spiked over 20% in a few hours Tuesday on no news… fishy. But there has been oil jitters and hurricane news out there. If such news doesn’t follow through, this dolphin will dive. If there is follow through you may want to go long Stricker Fuel (FUEL) while your at it.
• Viropharmaceutical (VPHM) – stock caught on fire the day before earnings. Today they report at 9:00 am, so trade this in the direction of the stock for the entire day. If it does bad, it should gap down.
• Blue Nile (NILE) – overbought after hours, up $5.90 (24.48%) after profit rises 12%. Is that really that great? Looking at the chart, it looks more like a gap up back to where it started.

So far August is living up to her reputation. The Dow has now tapped my key support level of 11,100. Currently I’m using my August watch list as a contrarian indicator.

More importantly, on a day like this I’m using this screen- (1) stocks on the rebound that (2) are not profit-taking victims. So far I found DLX and HANS. I’ll be covering my short on HANS today to avoid a pre-earnings runup. Then I might revisit it again. I don’t know, stock looks unusually strong (ie, it shouldn’t be). Anyway, I’ll post some charts at close of bell.

Once again my day trading is going haywire. I’m a little upset for selling my position in SCT yesterday (now up +60%). I also covered my position in TIE because a friend of mine went long (friends before money… it kind of sucks when one person rejoices while the other one sobs; as a friend, I told him my sentiment on TIE the stock which is NEUTRAL, but he still believes in TIE the company. Anyway, go TIE!)