Oil is hovering around the $40-a-barrel mark and there seems to be some sentiment that it could be headed higher. Israel has said its attacks on Hamas in Gaza will not be complete until Hamas is completely eliminated. I’m not a big fan of the oil stocks because they can be hard to predict and they usually do the exact opposite of what you think they are going to do. At least that has been my experience.
I still think oil can get below $30 due to the global economy but over the short-term if the escalating violence in Gaza continues, oil could be headed higher. I told myself I wouldn’t trade over the holidays but sometimes my instincts get the best of me.
We will continue to get some price volatility in oil and this trade could be like spitting in the ocean but I like it.
Schlumberger (SLB, $40.48, down $0.43) is the largest player in the oilfield service industry and is trading at 52-week lows. In fact, the stock is down nearly 60% from a high of $110 and may have formed a nice bottom. Take a look at a chart and you will see the support developing here at these levels.
OPEC has also been meeting with an eye toward pushing crude prices higher and I think Schlumberger could benefit from these catalysts. I’m looking at the February 45 calls (SLBBI, $2.35, down $0.10) as a possible trade. I’d like to get them for $2.00-$2.10 as I don’t want to pay someone three days of time premium right off the bat. The market is closed Thursday and the weekend is coming up after that.
Schlumberger is capable of making a 10%-20% move on any given day and hopefully the next one will be higher. The stock opened lower this morning and we may be able to get the call options at our target prices. If the trade is triggered then set stops at $1.25 with an exit of $3.00 or higher.
Rick Rouse
Rick@OptionsMentoring.com
Get RSS Feed
Dow Breaks Losing Streak
Friday, December 26th, 2008
The market managed to do a little something on Wednesday as Wall Street enjoyed the holiday and looks forward to 2009. After a slow start the Dow managed to pull out a gain of nearly 50 points on the strength of the financial stocks. The Dow’s close of 8468 represented the end of a five-day losing streak that started when the index touched 9000.
As we have witnessed over the last month, the Dow seems stuck in a trading range of 8000-9000 and we have done well trading within this range. Matter of fact, we have done well all year as we have nailed a lot of trades. I have been harping on the fact that the Dow can’t hold 9000 but at the same time the index has held above 8000.
On November 21, the Dow hit a low of 7400 while the Volatility Index (^VIX, 44.21, down 0.81) had soared to a high of 80. This was the day the bailout package had originally gotten squashed only to have it revived a few days later with an estimated $800 billion price tag. Although it’s hard to say if this was the “real” bottom, it has provided temporary support if nothing else.
The VIX has fallen roughly in half while the Dow has only managed to gain 1000 points off its low. Obviously, this is why the they call it the volatility index and with trading volume slowing down, the market has stayed in this trading pattern. This has caused the VIX to stabilize as well.
And we should remain this way for the rest of the year unless we get some type of major announcements. However, what will January bring us? There will be fourth quarter earnings due out, a new president will take office, and companies will try and give a clear picture of what 2009 will hold for them. Earnings will be important but Obama will be the wild card.
Oil and the dollar will also be factors but the market will need plenty of good news if it expects to get off to a good start. Many traders will be glad when 2008 is in the books as there were a ton of investors that got swallowed by the market… trying to go both long or short.
With the way the “new” market has become it is imperative that you watch your positions on a daily basis. Check your quotes three, four, or five times a day if you have to. We were successful for calling a lot of right moves because we watched (and blogged) about the market like a hawk.
If you aren’t educated about options and how they work, then you are swimming against the current. With pensions funds vanishing and 401K’s getting wrecked, why wouldn’t you want to manage your own retirement account? That’s what we teach here. We teach you how to manage a portfolio where your results are based on what you do. I like those odds and I’ve liked them ever since I dumped my broker back in the 90’s.
As you look towards 2009, ask yourself where you want your portfolio to be. Take the time to learn the market and how options work. Start slow if you are new. Eventually you will get there.
I’m working on a 2008 year-in-review blog for next week so my entries will be light as we wind down the year. I’ll try and cover all of the jaw-dropping events that took place and I’ll review how many of our option trades fared for 2008.
Look for a so-so day on Wall Street. Most of the market veterans took the day off and just made it a long weekend.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Oil, stock market commentary, VIX
Posted in Market Analysis | 1 Comment »