Friday, December 19, 2008

Sex and the Oil Barrel

The Wall Street Journal reports that depression fears and continued OPEC production have driven oil prices to four year lows. The pro shares ultra oil and gas etf (DIG) which holds oil company stocks (Exxon is 23% of its holdings) and is 50% leveraged (in other words "The fund seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Oil & Gas Index") was down 11.7% yesterday.

Few can disagree that buying at a bottom is better than sex. But how far does the oil barrel need to "go down" before we conclude there is a market bottom? The Journal says that this a four-year oil low. Despite the drop from $145.29 to $38, a 74% drop that rivals the tech stocks' fall seven years ago, I would rather be holding oil barrels than dollars, given the hyperinflationary policies of the Reinflateocrat Party!

Back in April '01 I put in a buy for the then QQQ (now QQQQ) for $35. My student, a professional trader who specialized in the Q's, argued that it would never fall that low. In fact, it did, right after 9/11. It ended up falling to something like $17, but then came back to the '40s. Now, in memory of the Q's, should I put in a buy on an oil fund at $35/barrel???

No comments: