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Martin Tillier

Martin Tillier

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One Trade That Doesn’t Need Oil To Recover

Attempting to pick the bottom of oil’s move down has so far proven to be an expensive game for energy investors. The $60 WTI level that we are rapidly approaching as I write was the launching point for the spike in prices that occurred in 2007, as the chart below indicates, so may at least provide some support as the year ends. For investors who believe that could be the case, there is a good trade opportunity if that does turn out to be a good support level, but that also has the potential to pay off even if prices continue to fall.

As the cost of oil, and therefore energy sources in general have fallen, so the companies that convert that raw material into usable power, the utilities, have gained favor. It is one of the best performing sectors so far this year, as evidenced by the iShares Utility ETF (IDU), which is up close to 25% on the year.

It is not just falling oil prices that have fueled (forgive the pun) this out-performance by utilities.

Obviously, lower fuel costs are a benefit, but there are several other factors that have driven investors to the sector. First, the U.S. economy has continued to gain strength as the recovery has picked up pace. Output, and therefore demand for electricity continues to increase. In addition, the high yields associated with the industry have been attractive as interest rates have remained at historic lows and income investors have been reaching for yield. Dividend paying stocks were all…

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