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April 11, 2019, 10:04 a.m. EDT

If you’re searching for higher returns, oil has doubled the gain of stocks

Consider shares of Royal Dutch Shell, Exxon Mobil, Chevron, Halliburton and Baker Hughes, among others

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By Nigam Arora


AFP/Getty Images
Since the December lows, the United States Oil Fund has produced a return of 45%.

Are you searching for higher returns and lower risks in the stock market? One avenue is to explore commodities. These days it is easy to buy commodities using exchange traded funds (ETFs), which that trade like stocks. Commodities also provide diversification.

From the recent lows in December, crude oil has returned about twice that of U.S. stocks. Let’s explore the issue with the help of a chart.

Chart

Please click here for an annotated chart of crude oil ETF /zigman2/quotes/203483736/composite USO -0.53% . Those with more sophistication may consider using a chart of oil futures . Futures present a significant advantage over ETFs but aren’t suitable for most investors.

Please note the following:

• The top pane in the chart is oil ETF USO.

• The bottom pane in the chart is ETF /zigman2/quotes/209901640/composite SPY +1.62% , which represents the S&P 500 Index /zigman2/quotes/210599714/realtime SPX +1.60% . Similar conclusions can be drawn by comparing crude oil with the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.34% , Nasdaq 100 ETF /zigman2/quotes/208575548/composite QQQ +2.32% and small-cap ETF /zigman2/quotes/209961116/composite IWM +1.62% .

• The chart shows that The Arora Report gave a buy signal on crude oil the day after Christmas, which was the low of this cycle.

• The chart shows that since the Arora buy signal, oil ETF USO has produced a return of 44.6%.

• We are still holding a partial quantity, as we’ve taken partial profits. There have been many other signals on oil to manage the position and reduce risk.

• In terms of return, crude oil has either beaten or provided comparable returns to popular stocks such as Amazon /zigman2/quotes/210331248/composite AMZN +2.49% , Apple /zigman2/quotes/202934861/composite AAPL +3.75% , Netflix /zigman2/quotes/202353025/composite NFLX +2.07% and Google /zigman2/quotes/205453964/composite GOOG +1.17%   /zigman2/quotes/202490156/composite GOOGL +1.14% .

• The chart shows that The Arora Report gave a buy signal on the stock market on Christmas Eve. That turned out to be the low of this stock market cycle. Since then, the stock market has returned 22.7%.

• The chart shows that the resistance in the stock market is very near. This indicates higher risk.

• The chart indicates that oil can move up a significant amount before reaching major resistance. This indicates a potentially more lucrative opportunity in oil than in stocks.

• RSI (relative strength index) in oil is overbought. This indicates a high potential of a short-term pullback in crude oil.

• The RSI pattern shown on the chart is very bullish. This indicates a reasonably high probability of a higher move in crude oil after a pullback.

Jeff Reeves: Three ways for stock-market investors to play oil’s resurgence

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

/zigman2/quotes/203483736/composite
US : U.S.: NYSE Arca
$ 28.35
-0.15 -0.53%
Volume: 2.45M
Sept. 25, 2020 4:00p
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/zigman2/quotes/209901640/composite
US : U.S.: NYSE Arca
$ 328.73
+5.23 +1.62%
Volume: 71.07M
Sept. 25, 2020 4:00p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,298.46
+51.87 +1.60%
Volume: 2.18B
Sept. 25, 2020 5:06p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,173.96
+358.52 +1.34%
Volume: 391.73M
Sept. 25, 2020 5:06p
loading...
/zigman2/quotes/208575548/composite
US : U.S.: Nasdaq
$ 271.56
+6.17 +2.32%
Volume: 55.24M
Sept. 25, 2020 4:00p
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/zigman2/quotes/209961116/composite
US : U.S.: NYSE Arca
$ 146.41
+2.34 +1.62%
Volume: 20.69M
Sept. 25, 2020 4:00p
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 3,095.13
+75.34 +2.49%
Volume: 4.62M
Sept. 25, 2020 4:00p
P/E Ratio
118.97
Dividend Yield
N/A
Market Cap
$1550.32 billion
Rev. per Employee
$359,671
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 112.28
+4.06 +3.75%
Volume: 149.98M
Sept. 25, 2020 4:00p
P/E Ratio
34.13
Dividend Yield
0.73%
Market Cap
$1946.64 billion
Rev. per Employee
$1.98M
loading...
/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 482.88
+9.80 +2.07%
Volume: 3.77M
Sept. 25, 2020 4:00p
P/E Ratio
81.47
Dividend Yield
N/A
Market Cap
$212.96 billion
Rev. per Employee
$2.22M
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/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 1,444.96
+16.67 +1.17%
Volume: 1.32M
Sept. 25, 2020 4:00p
P/E Ratio
32.23
Dividend Yield
N/A
Market Cap
$980.76 billion
Rev. per Employee
$1.39M
loading...
/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 1,439.06
+16.20 +1.14%
Volume: 1.52M
Sept. 25, 2020 4:00p
P/E Ratio
32.10
Dividend Yield
N/A
Market Cap
$980.76 billion
Rev. per Employee
$1.39M
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