RealMoney Silver - Don't Bet Against Energy

Don't Bet Against Energy
By Rev Shark
RealMoney.com Contributor
5/16/2008 12:57 PM EDT

The market is certainly doing a good job keeping things tricky. The swings in the leading sectors lately have been so fast that you risk whiplash if you trade them. To a great degree, that is a function of an awful lot of folks looking for the dollar to start to strengthen and oil to weaken.

Those are the themes that many traders are anticipating, and they aren't playing out smoothly. Major sector rotations just don't play out easily. There is always a battle between those who want to continue to ride what has been working, and those who are anxious to anticipate new trends. We end up with this back-and-forth battle that ends up frustrating both groups.

I'm not inclined to bet against the energy trade at this point. Although oil does look parabolic, and the chart is constantly being compared to the Nasdaq bubble back in 2000, it is awfully hard to bet against the momentum when fundamentals are still very attractive. The problem in 2000 wasn't just that the market went up a lot, but that the fundamentals simply were not there to support the move. That is not the case with oil.

The big question is whether continued strength in oil will hurt the broad market. For years now the market has been in an uptrend as oil moved steadily higher. High oil simply hasn't mattered to the indices very much. Will that correlation continue to hold up, or are we getting to a point where high oil is going to be a negative because it is inflationary?

I don't know the answer to that, but I suspect that there is more upside in energy stocks, particularly in solar energy. Even if crude oil does start to pull back and the broader market struggles, I'm looking for alternative energy to hold up well.

This market is not going to be easy going forward, but there should be some good trading if you stay in the right sectors.

James "Rev Shark" DePorre is the author of Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital made a Fortune Investing in the Stock Market. He is founder and CEO of Shark Asset Management, an investment management firm, and he also operates sharkinvesting.com, an interactive online community that serves and educates active investors. DePorre holds business and law degrees from the University of Michigan, is a member of the Michigan Bar Association and a former tax attorney and CPA. He lives in Anna Maria Island, Fla., with his wife and two children. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback; click here.

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