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Martin Tillier

Martin Tillier

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Another High Risk, High Reward, Short Term Trade

Now that oil, as represented by WTI, has jumped above $50 and trades such as the Petrobras (PBR) purchase that I recommended a couple of weeks ago are showing a tidy profit (+ 41.4% in that case), it is time to trim positions such as that and look around for others with potential for the same kind of pop. It is not that PBR couldn’t go higher; of course it could, if oil continues to climb. It’s just that the pace of increase is likely to slow from here, so taking some profit and looking around for something that could show a similar short term performance makes sense.

The problem, of course, is that most stocks in the energy sector have tracked WTI’s upward move. Value and potential are a little harder to find in light of this dynamic. The answer could lie in the hardest hit area of the oil industry, deepwater drilling. Stocks in companies that specialize in that area have been hit particularly hard and have been slower to react to the recent bounce. There are very good reasons for that; oil recovered by deepwater drilling is relatively expensive, so the sustained drop represents an existential problem for some companies in the field.

Given the level of volatility in oil prices recently, the market can be forgiven for not rushing to buy deepwater drilling stocks on this jump, but now that the $50 level has been breached, there are several significant support levels in close proximity, so a dramatic drop back looks less likely than it did just…

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