What To Do If This Bigger Picture Remains Unchanged?

| May 29, 2012 | 0 Comments

nyseWe normally see a positive market bias ahead of pre-holiday trading.

But that was not the case Friday as worries about Europe and continued disgust over Facebook (FB) and JPMorgan (JPM) dominated the headlines.

In addition, overall share volume was the lightest of the year as we slowly slid lower after a brief attempt to rally at the start of the day.

We care about volume because it has a tendency to skew the amount of buyers and sellers.

For example… if more buyers decide to take off first, stocks will decline in value because sellers can’t get rid of their stock.

And again, Friday had the lightest volume of the year.

Even a possible glimmer of hope… the financial stocks were filled with doubt.

For instance, last week was the best weekly performance for financial stocks in May.

But make no mistake about it…

The bar is set very low.  In fact, the action last week had all the hallmarks of a routine oversold bounce in a down trending market.  Bounces like these are usually strong enough to make some investors hopeful that a bottom may be in.

However, when all is said and done, these bounces cause tremendous pain to those who have been sucked in when they fail.

My point is…

What’s going on here, really isn’t any great mystery at all.  We have all these issues in Europe and very little clarity.  Until that changes, the market is going to continue to struggle.

Now, we may have some reprieves as the politicians continue to ‘kick the can’ down the road.  But this market has grown tired of that and is looking for some real solutions this time.

Unfortunately, the big picture remains unchanged.

We’re in a downtrend and have some substantial fundamental headwinds. The attempt to turn things back up this last week was a start, but unconvincing.

And the bulls still have the burden of proof.

At this point… if Europe remains a mess, what’s the play?

I think it’s time to take a peek at oil-centric stocks as a way to find winners amidst all of this global carnage.

Specifically, an oil stock like Schlumberger (SLB) that has been beaten down over the last few months along with the decline in overall oil prices.

My focus here is on a simple oil related company that’s benefiting from a number of positive developments out of energy… including the increased exploration and drilling that has been spurred by high energy prices.

Not to mention the exciting new finds in offshore and deep-drilling markets such as the Gulf of Mexico, South America, Africa, and Asia.

As some of you may know, SLB is the leading global energy and oil services contractor.

The company just reported solid results for the quarter.   Earnings were $0.97 per share on improved demand for international projects and deepwater drilling.

And analysts expect strong earnings for 2012, targeting EPS of $4.32 vs. the 2011 figure of $3.67.

The consensus view is that the firm will grow earnings at double-digit rates over the next three to five years in response to the beginning of a multiyear capital-spending cycle by energy producers.

In this case, I would say just go buy the stock.  However, if you want to enter the stock through call options, take a look at the SLB July $67.50 call options for $3.00 or better.

Those options will give you more than a 50% probability of making money on even the smallest of rallies!

So, here’s the bottom line…

As Europe remains a mess and domestic data remains uncertain, how can we stay in the stock market while taking advantage of opportunities to make money?

I believe one such way is through the beaten down oil/energy sector.

When we see global uncertainty, the commodity sector is usually the first to get hit.

But it’s also usually the first to rebound.

Let’s hope history repeats itself!

Safe Trading,

Marcus Haberman

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Category: Options Trading

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.