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Investment Opportunities

How to Find Opportunity in a Down Market With Oil ETFs

How to Find Opportunity in a Down Market With Oil ETFs
  • PublishedMarch 9, 2020

Panic!

That’s exactly what we are witnessing in the markets right now. But this panic can lead to opportunity!

Let me explain…

The CBOE Volatility Index (VIX) jumped over 50 today. That means the market is pricing in a 68% probability of a 50%-plus move in the S&P 500 (up or down) from current levels over the next 12 months. Let me repeat that – 50% up or down!

In 2009, that number was as high as 85%.

So that uncertainty is starting to creep in…

Part of that is thanks to the coronavirus and the U.S. government’s lack of a good strategy for combatting it. No one knows how this outbreak will end, but there is optimism coming out of places like South Korea and China (I believe the news coming from South Korea more than China).

In both countries, the rate of increase in coronavirus cases is slowing dramatically. In China, of the 80,000-plus people who were diagnosed with COVID-19 (the disease caused by the coronavirus), more than 57,000 have been sent home. And businesses are ramping back up. In the U.S., we are nowhere near the “peak virus” stage, which is expected to occur in April or May.

With that being said, the bigger news today was the oil shock.

Fortunately, we had no oil positions in The War Room portfolio… until today. With the huge move lower, we started to look at some oil exchange-traded funds (ETFs). I can’t tell you which ones because that would be unfair to our members.

But I don’t think oil prices will drop to zero despite the 30% decline today. With 95% of the cars in the world running on gasoline, the chances of that happening are slim.

Right now there’s an oil war between three parties: U.S. shale, OPEC and Russia. These are the three largest producers of oil, and this is a war to put one or more parties out of commission.

Based on the low cost the Saudi Arabians enjoy in OPEC, they will emerge scarred but not dead. Russia needs oil revenues to survive. The U.S. shale industry will likely be the victim. The industry is overleveraged, and the prospect of a glut in oil means companies will either be acquired or go out of business.

Action Plan: Buckle up for a huge roller-coaster ride over the next few days, weeks or months, and set your sights on high-quality stocks, dividend payers that will boost your income and some smart speculation in places like the energy sector.

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Written By
Karim Rahemtulla

With more than 20 years of experience, Karim has mastered the subtle art of options trading. What we admire about him is his ability to score huge gains while minimizing the massive amount of risk that often comes with options. Beyond his expertise in options trading, he is also the author of the best-selling book Where in the World Should I Invest? He publishes weekly about smart speculation in his latest free e-letter, Trade of the Day.