It seems that everyone today is an oil bull. As alert contrarian's, we should look at this overly bullish view as an obvious signal for a sharp sell off. The Bush Administration is being blamed for high energy costs, and a sharp sell off would very beneficial to the President's upcoming approval ratings. In fact, there are some behind the scene measures in place that lead us to believe that oil prices may drop to $55/bbl soon.
1) An emergency delivery of gasoline from Venezuela was due in the US this past weekend. In addition to this 240,000 bbls an additional three are due to arrive between now and the end of October.
2) Japanese refiners are currently considering sending a second gasoline cargo to the US.
3) China's oil imports growth slowed, importing only 3.95% more crude from Jan to Aug 2005 than it did during the same period last year.
4) Large Speculators in the most recent Commitment of Traders Report increased their net short positions in crude contracts.
Catalyst For The Year End Rally
It would not surprise me to see oil prices stay down long enough to allow the year end rally to gain some solid footing. A significant sell off in oil could confirm my opinion that the S&P 500 may reach the 1350-1400 level by year end. Of course, it would also be my opinion that a rally of these sort would be the Grand Finale that I have written about in the past.
Now that the cats (head) out of the bag so to speak, you might be asking what do we do with all of our energy stocks. If you are a long term investor (2-5 years), hang on to XOM,CVX,CHK and SLB. Add to these positions on pullbacks of 10-15%. If you are more short term oriented, you might want to sell half, or all of your positions.
If you want to take a few chips off the table, go ahead if it makes you more comfortable. We are going to trade one stock today that we bought on Friday. I am going to sell XTO Energy for a 2.59% 1 day gain.
Best Buy (BBY) and Wal-Mart (WMT) should put on impressive performances in the weeks a head.
