Over the last month, the intertwined relationships of the markets have been wacky, to say the least. On July 15, the SEC announced its protection plan for Fannie Mae (FNM), Freddie Mac (FRE), and 17 banks and brokerage firms. This move totally disrupted the natural ebb and flow of the market.
Financial stocks bottomed (for now) on that date – which makes sense. But the next part doesn’t make sense. Oil peaked on July 15. What does the U.S. government bailing out financial institutions have to do with the oil market?
When the government stepped in to protect those financial stocks, the dollar rallied. Oil is traded in dollars. And much of the rise in oil over the last year can be attributed to the falling dollar. So the rally in the dollar that started on July 15 caused oil prices to drop.
All this being said, it looks like the dollar has too much resistance to get through in the near term. Plus, at this point, oil has too much support at $110 to blast right through that level. Look for a pullback in the dollar and a rally in oil over the coming months.
You shouldn’t get overly excited about this manufactured rally in financial stocks, or about the decline in oil. The downward trend for financial stocks is still in place, as is the upward trend for oil. The government may have reversed things for the short-term, but this could be a major opportunity for you to short financial stocks and buy energy stocks.
[Ed. Note: As investment analyst Rick Pendergraft suggests, this could be a great time to buy energy stocks. And Rick's colleague, ETR Investment Director Andrew Gordon, may have the perfect picks for you. In the coming years, energy companies will spend nearly $10 trillion (yes, trillion!) finding and extracting new sources of oil and gas. Andrew has uncovered two best-in-class drilling rig companies that will be on the receiving end of this tidal wave of cash. Learn more here.]
Similar Articles:
- Don’t Be the Sucker in These “Sucker Rallies” – I don’t like the Wall Street bromide to “buy when there is blood in the streets.” It encourages inex…
- What Is Panic Buying, and How Can You Protect Yourself From It? – The huge gains in the market in the week leading up to Thanksgiving reminded me that there is such a…
- Why This Trend Trumps the Tally – What’s wrong with depending on the collective wisdom of the analysts who follow stocks day in and da…
- IndyMac Goes Down, Who’s Next? – What started last summer with news of credit problems and uncertainty in the mortgage industry has n…
- What Is an Eeyore Stock? (and How Can You Make Money on One?) – Believe it or not, stocks have personalities. They can be happy, sad/depressed, manic, or plodding. …
- Financial Word of the Week: Bailout – With all of the turmoil in the financial industry, one word that keeps making the rounds is “bailout…
- The Waiting Place – Indulge me for a minute, if you will. You see, I have three sons – and each and every night when the…