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Oil Price Decline Creates Stock Opportunity

NEW YORK ( TheStreet) -- The crude oil market is taking a long overdue rest. Prices have dropped more than 6% in the last few days, with oil now trading at less than $107 a barrel.

Does this represent the beginning of the end of this monster trade? Or is it just a brief pause in a relentless upswing? I'm betting strongly on the latter and looking to scoop up some oil stocks as their prices fall into a value zone.

Three events have combined in the last days to cause oil prices to drop precipitously.

First, there was talk of a peace deal in Libya that Moammar Gadhafi had preliminarily accepted. It's hoped that this would restore some of the 1.4 million-barrel Libyan oil supply that has been lost.

Second, the revised rating of the Fukushima Dai-ichi nuclear accident from a level 5 to a level 7 (i.e., "Chernobyl-like") event has spooked investors.

Lastly -- and probably most damaging to oil prices -- the Goldman commodity group in London issued a note advising clients to take profits on their oil positions, at least in the short term.

We can think about the money that has entered the oil trade in a two-tiered way.

There is the long-term money: those investors and new commercial entrants who have decided they can no longer afford to ignore oil either for the sake of their portfolios or because of the increasing risk of higher prices to their businesses.

Then there is the short-term money: the hedge funds and individual investors and other "fast" players who can afford to get in and out of the oil trade and do it at a moment's notice, trying to catch the momentum and lock in short-term wins. It is the "fast," short-term money, that has temporarily moved out of oil because of the three events I mentioned.

The oil stocks have gone with them. The energy sector, long the leader in this move upward in the stock market, has clearly set some interim highs and has begun to roll over in the short run.
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