The Boldest Prediction I'll Make This Year
By Jeff Clark
May 22, 2008
Buyers of oil stocks today will suffer an enormous case of "buyer's remorse" by this time next month.
Buyer's remorse is the feeling of regret you get when you realize you just did something dumb. Like forking over an extra $10,000 for the dual turbo model that performed so well on the test drive, but doesn't make a difference in bumper-to-bumper traffic... Or paying top dollar for the newest square-head driver that was so forgiving on the driving range, but plays the same as your old driver on the golf course... Or... well, you get the idea.
By this time next month, oil stock buyers will feel the same way.
Let me explain...
Oil is on an amazing run. It's headed even higher over time. And oil stocks will be the big beneficiaries.
But if there's one thing I've learned in all my years of trading, it's this: If all the talking heads on CNBC, and all my buddies, and my wife, and my father-in-law, and my mother are talking about the same thing, then it's time to sell.
It's time to sell oil stocks.
I know that's the dumbest thing you've heard all year. And I know the Growth Stock Wire feedback e-mail box is about to get filled with all sorts of comments about how "Jeff must be drinking again." But stay with me for a moment...
Take a look at the following chart of the Bullish Percent Index for the oil sector...
The Bullish Percent Index is a measure of how many stocks in a sector are in bullish patterns. As you can see, yesterday, the oil sector BPENER closed over 91. In other words, more than 91% of the stocks in the oil sector are running higher.
This chart cannot go over 100, and it rarely goes above 90. When it gets this high, it's almost always followed by a dramatic decline in the price of oil stocks. (Take a look at what happened to oil stocks back in January... or in July and August of last year.)
Even more important is the negative divergence in the Moving Average Convergence Divergence indicator (MACD). The MACD measures the strength of any move. If a rally is strong, then the MACD makes new highs along with the stocks. If a rally is weak, then the MACD forms a lower high and signals the potential for a change in trend.
The recent rally in oil stocks is weak.
I'm bullish on oil and oil stocks over the long term. Heck, if T. Boone Pickens says oil is going to $150 per barrel this year, then who am I to argue?
But in the short term, oil stocks are susceptible to one heck of a pullback. And if you're looking to buy into the sector, then you'll have a much better opportunity one month from now.
Best regards and good trading,
Jeff Clark
