As Oil Breaks Below $50 — Wall Street Gets More Bearish: How Low Can Oil Go? Two Stock Plays To Consider
For those of you who read my stock market notes, you may remember I went bearish on stocks about two weeks ago; and, I wrote then that the freefall in oil was eventually going to take its toll on stocks here at home. At that time, I went to about 80 percent cash. Sometimes you guess right; but, more often than not, the market will confuse most of the people — most of the time. Having said that, the collapse in oil, slowdown in China, and rumblings that Greece may be allowed to leave the European Union, and we have plenty of reasons that stocks are down over 300pts. as I write this note. I also think we paid it forward with some of the gains we made in the Santa Claus rally. I would look for the selling to continue, albeit with some false rallies — at least till after the ECB makes its decision on Jan. 22nd with respect to initiating its own version of Quantitative Easing.
Brent Crude is down $2.32, or -4.38 percent, to $50.37, while West Texas Crude is down $3.07, or -5.44 percent to $53.35.
Patti Domm, writing on CNBC’s website this afternoon says, “with more supply hitting the market, Wall Street is getting more bearish on the outlook for oil prices, and some strategists see the market [oil] many months away from finding a floor/bottom. Analysts see oil prices weakening further through the second quarter of this year, before leveling off and perhaps rising in the fall. Citigroup lowered its forecast on oil today, to $63 per barrel, down from its previous forecast for $80 oil this year. Citigroup commodities analysts added that they think the [oil] market should sort itself out by the end of 2015,” and that Brent Light Sweet Crude should trade within a range of $55 – $70; and then, average $70 per barrel in 2016.”
How Low Can Oil Go?
“The ultimate target [for oil] is now $33,” said John Kilduff, of Again Capital. “That’s how it sets up on the charts, and that’s a pronounced double-bottom.” And, “there are signs that Saudi Arabia may be increasing its market share on the U.S. Gulf Coast once again, adding further to price pressures in the U.S. market, with direct ripple effects in global markets — in Q1,” according to the Citigroup note to clients.
Where Might Be One Or Two Oil Plays To Buy In This Selloff?
Chad Mabry, of the Energy and Natural Resources Research Department of MLV and Co. said in an interview on CNBC’s Squawk Box this morning that he expects oil to rise back to $70 by year’s end; and, added that “the closer we fall towards the $40 level, the harder the snap back will be — towards the marginal cost of production.” Mabry said he would be looking at Carrizo Oil and Gas, and PDC Energy — because of the management team, and core assets respectively. “I would also throw in Sanchez Energy with their condensate exposure,” he added. “We saw a ruling from the government last week that allows exports of condensate. That should open up a big market.
Since I moved to about an 80 percent cash position in the past two weeks, I am using today’s selloff to buy shares in FaceBook (FB), and ISIS Pharmaceuticals (ISIS). V/R, RCP