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$65 Oil Triggers New Fracking Profits

Stocks abruptly reversed from their highs yesterday.

The Nasdaq Composite lost more than 45 points before the closing bell as traders took profits on high-flying tech shares. Meanwhile, the Dow managed to hang in positive territory. Despite losing its positive momentum as the day progressed, the Big Board eked out another record close.

As investors pumped the brakes on this year’s furious stock market rally, commodities stole the show. We’re beginning to see more than a few powerful rallies bubble up in some long-forgotten commodities, including precious metals.

But the market’s most impressive move so far this year belongs to oil. Light crude sprinted above $65 yesterday for the first time since late 2014, extending its wild four-month comeback that has produced gains north of 35%.

“The milestone is significant because it is the price point at which extraction oil is profitable for most drilling companies, depending on the method they use,” Business Insider notes.

After years of pain, the oil biz is looking a lot more promising. Frackers were rolling in profits during last decade’s boom as the price of oil stayed within range of $100. But the 2014 selloff proved to be a disaster for the sector.

As oil plummeted below $30, many of these frantic fracking operations simply couldn’t turn a profit. They had overplayed their hands and expanded too quickly during the boom. Many of these wildcatters finally folded as an unprecedented crude glut kept a lid on oil prices, scaring away investors for the better part of the past four years.

With prices now back on the rise above key levels, some experts see an opportunity for a more cautious group of frackers to rake in some serious profits this year.

“U.S. shale companies are poised to earn real money this year for the first time during the fracking boom,” the Wall Street Journal reports.

Unlike the previous fracking bonanza, many of these companies aren’t embarking on costly expansion plans as prices rise, the WSJ explains. Adhering to this “gospel of moderation” could help many of these companies maintain profitability this time around — instead of crashing prices by producing more oil than the market demands.

That’s good news for traders searching for some potentially profitable turnaround plays…

At the very beginning of the year, we showed you how a raging energy bull was already starting to materialize.

The sparks that ignited this oil rally showed up in the market back in late summer 2017. We first rotated into the sector toward the end of the third quarter as oil topped $50 a barrel for the first time since May. Energy stocks were finally showing signs of life after lagging the oil rally for most of the year.

When we compare the energy sector’s recent run to the S&P 500, it’s not even close. The Energy Select Sector SPDR (NYSE:XLE) has jumped more than 25% since Sept. 1. The S&P is up a 15% over the same timeframe.

Until our signal late last year, oil patch names remained stuck in a nasty downtrend while the broad market has maintained its strong uptrend. But just look how quickly the narrative has changed. Six months ago, talking heads were discussing the end of oil. Now that the market is proving the status quo wrong, we’re seeing a more turnaround plays come into view.


Greg Guenthner
for Seven Figure Publishing

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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