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Oil Uptrend Reviewed

oil-2009-07-15

As you can see on the chart, oil bounced off the uptrend line and is rallying. Today, it is up 4.25% as I write this. Why? As I wrote in the previous post (go read it and check out the Cass Elliott video) investors are charged up by the better than expected earnings reports we’ve had so far this quarter. They are beginning to move back into the camp that says we are heading out of the recession due to the positive impact of the monetary stimulus.

Positive impact of monetary stimulus gives you two things: (1) better equity returns (so the broad market is up very big today); and (2) potential inflation and a weak dollar (oil moves higher with a weak dollar and rising inflation).

I wanted to give you an update on our current tactical activities in light of this. We are using this move as an opportunity to lighten up on energy holdings in accounts that were at or above our target levels for the energy sector.

If you read the Investment Commentary included in your quarter-end statement (assuming that you are one of our clients), you know that I believe the recovery will be lumpy and move up in fits and starts, but ultimately we will see 1050 on the S&P 500 Index, at which point we will reassess our strategy. Our focus is primarily on Technology and Financials (selected ones in selected industry groups within these sectors) as we move out of the recession.

You see the line I’ve drawn in around 66 on the graph. This will be some strong overhead resistance for the price of oil, and we are using this rally up to that level to move out of some energy holdings and will redeploy those dollars into tech and financials on pullbacks.

Mark