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.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV