Heads Up: The S&P is down over 14% year-to-date. But these traders aren’t playing stocks – and they’re up 74.38% since January 1. Find out how to tap into this little-known market right here.
Filling your tank is about to get cheaper.
An oil price war between Saudi Arabia and Russia erupted on Monday morning, causing U.S. crude to fall 26% for its worst day since 1991.
See, the two countries are increasing their oil supply at a time when demand is low, with travel decreasing due to the coronavirus. Add increased supply and decreased demand together, and you get oil prices at 18-year lows.
But there’s an opportunity hidden beneath the rubble of the commodity’s crash – and I don’t just mean cheap gas.
Famed investor Warren Buffett said it best: “Be fearful when others are greedy. Be greedy when others are fearful.”
With the market’s fear gauge, the CBOE Volatility Index (VIX), at its highest level since the 2008 financial crisis, you can’t deny that fear is rampant in this market…
Meaning now is the time to buy.
Take advantage of low oil prices right now with these six plays…
How to Turn Oil’s 18-Year Low into Long-Term Profits
Global information provider IHS Markit projects that in the first quarter (Q1) of 2020, world oil demand will decline by 3.8 million barrels per day (BPD) from a year earlier. That would make for the biggest slump in history. Previously, the largest quarterly decline was during the financial crisis, when Q1 2009 oil demand fell 3.6 million BPD year-over-year.
During oil production talks at the Organization of the Petroleum Exporting Countries (OPEC), production cuts were recommended – cuts that Russia vehemently rejected, sparking an all-out price war with Saudi Arabia, who started slashing prices to compete.
So, let’s boil this down. Demand for the world’s most important commodity is dropping, and the world’s leading oil producers are fighting, increasing supply.
Lowering demand and increasing supply spells one thing: more downside, at least for the short-term. In fact, investment bank Goldman Sachs predicts the price war could drop oil as low as $20 a barrel.
Let’s take a look at a chart of crude…
U.S. Crude
March 9’s price action came close to an 18-year low for oil. Goldman Sachs’ $20 target is a 20-year low.
This is where the opportunity comes into play. See, the United States Oil Fund LP (USO), which tracks the price of West Texas Intermediate Light Sweet Crude, has just hit an all-time low.
United States Oil Fund LP (USO)
And it’s not the only one. Oil services companies everywhere are taking it on the chin.
The VanEck Vectors Oil Services ETF (OIH), which holds the likes of Schlumberger Limited (NYSE: SLB), Halliburton Company (NYSE: HAL), and Tenaris S.A. (NYSE: TS), has reached all-time lows.
Where the price of oil goes, so goes oil service stocks. Therefore, when oil recovers, so will the OIH.
VanEck Vectors Oil Services ETF (OIH)
Remember when I mentioned the cost of filling your tank? Gasoline prices have dropped to lows not seen since 2008. The United States Gasoline Fund, LP (UGA) has reached 12-year lows, as illustrated in the chart below:
United States Gasoline Fund, LP (UGA)
Many people will look at these charts and see one thing – bad news. That’s because oil tends to serve as a measure of global growth expectations. So, when oil prices are dropping, many fear that so is economic growth.
But you can’t let fear keep you on the sidelines. The fall in oil prices is actually spelling out an impressive profit opportunity…
Although the short-term prognosis is a drop to $20 from current levels, the long-term prognosis is a resounding up! Let’s face it – the demand for oil will return. I mean, our planet runs on it!
The coronavirus will eventually be contained, and people will return to their daily lives, increasing oil consumption to normal levels. And the OPEC won’t be content with $20 per barrel prices for long, meaning supply will eventually drop, driving prices up yet again.
Now, you could buy and hold any of the above instruments. Given the potential for oil to drop to $20 a barrel, current levels are still a long-term bargain. You may wish for oil to drop to this level prior to entering. Or, you could buy a partial position and buy more if oil drops further from here (dollar cost averaging). Of course, waiting for oil to drop further before entering may make you miss the opportunity if oil bounces sooner.
But to supercharge your returns, you can buy long-term options (LEAPs) or sell 30-day covered calls.
Whatever strategy you employ, you don’t want to let this multi-decade opportunity to pass you by. But oil isn’t the only market stacked with potential right now…
2020 is shaping up to be a landmark year for cannabis markets as well – and I want you to be able to capitalize on this unprecedented economic phenomenon.
That’s why I teamed up with legendary quarterback Joe Montana and cannabis pioneer Danny Brody for the 2020 American Cannabis Summit.
We talked about the number-one trick to spot a potential winning cannabis IPO…
The biggest investing mistake first-time cannabis investors make…
And the three numbers you absolutely need to check before investing a penny in any cannabis stock.
Watch it all right here.
Good trading,
Tom Gentile,
America’s #1 Pattern Trader
