Investor Alert
Thomas H. Kee Jr.

Dec. 6, 2016, 4:33 a.m. EST

The time has come to take profits from the oil trade

By Thomas H. Kee Jr.

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At Stock Traders Daily, we have officially recommended that clients take profits from their oil related trades. On Nov. 2, we issued buy recommendations on oil and oil stocks in advance of what we anticipated to be a blockbuster OPEC deal that would spur oil prices from bearish to bullish.

The observations were predicated on Saudi Arabia and the reversal in posturing that took place as leadership transitioned in the oil space, but even more precisely on the additional vested interest Saudi Arabia had in securing a deal to support oil prices.

Over and above the economic interests shared by it and other oil-producing countries, Saudi Arabia is planning an IPO of their oil assets, and in doing so, they want to get the best price possible when they go public. The only way to do this is to support oil prices, and that is exactly what they intended to do many months ago when they suggested the deal to OPEC.

Anyone looking at this objectively with a simple understanding of the fear and greed and political posturing involved could see that the odds of a meaningful deal were high. It seemed as if the media thought otherwise, even smart-money investors, and on the heels of this blockbuster deal, oil prices have spiked as a result of short-covering.

The increases we have seen recently were not just related to the support of prices, but more importantly, short-covering drove prices higher, and significantly so, and very quickly.

Arguably, prices have moved too far too fast, and we are taking profits. The best performers of these six recommendations were Baker Hughes  and ProShares Ultra Bloomberg Crude (PSE:UCO)  with 20.5% and 24.2% returns respectively in just over one month. We will continue to monitor these, of course, in addition to identifying other market-based opportunities as they come, and alert clients appropriately.

Additionally, there are risks on the horizon given the meeting of non-OPEC producers later this week because ultimately the OPEC deal hinges on them reaching an agreement to cut 600,000 barrels or more from their combined production. If that doesn't happen, the OPEC deal falls apart.

For now, we have no exposure to oil, long or short, but that may change if the market comes to us.

Here are our recent results:

Company Symbol Entry Date Price Exit Date Price2 Result
Exxon Mobil Corp XOM 11/2/2016 10:00 83.45 12/5/2016 9:44 87.12 4.40%
Chevron Corp CVX 11/2/2016 10:00 105 12/5/2016 9:44 113.09 7.70%
Schlumberger NV SLB 11/2/2016 10:00 77.76 12/5/2016 9:44 84.48 8.64%
BP PLC BP 11/2/2016 10:00 34.01 12/5/2016 9:44 35.56 4.56%
Baker Hughes BHI 11/2/2016 10:00 54.46 12/5/2016 9:44 65.65 20.55%
Ultra WTI UCO 11/2/2016 10:00 9.05 12/2/2016 13:44:00 AM 11.24 24.20%
Link to MarketWatch's Slice.