Wednesday, April 19, 2006

Our Pre-Planned Oil Based Investing Strategy Going Forward (Market Timing Based)

The following investing strategy is based on the rising crude oil price trend and my own personal prediction that the average regular unleaded price will reach something close to $3.33/gallon.

This strategy will be re-evaluated if we start sending Tomahawk cruise missiles into IRAN or take other military actions against them.

(1) Once light-sweet-crude oil hits $79.71/barrel
(a) Take profits & sell 67% of oil based stocks and mutual funds
(b) Transfer these funds as follows: 1/3 into BEARX (bear market fund), 1/3 into PHO (water index), 1/3 into high yield money market

(2) If light-sweet-crude oil hits $83.47/barrel
(a) Take additional profits and sell off remainder of oil related stocks
(b) If we have not yet had a significant market correction yet, further increase position in BEARX. Otherwise, i'll reconsider... perhaps establish initial positions in 3a, 3b and 3c (below).

(3) If timing of BEARX purchase goes well (occurs prior to a 10-20% market correction), I'll liquidate my BEARX position and transfer funds three new positions. New positions based on international stock ETFs trading at the lowest average price-to-earnings-growth (PEG) ratios (a) Brazil ETF (EWZ): PEG = 0.61
(b) Taiwan ETF (EWT): PEG = 0.455
(c) Emerging Markets (VWO or EEM): PEG = 0.70

Yes, market timing is difficult to do. Yes, the emerging market ETF has some direct overlap with the Brazil ETF. One of the key underlying reasons for selling into the rally is that oil based inventories are continuining to rise and should eventually cause a price drop. We're not completely writing off the trends in oil; however, we want to see a dip in crude prices before we re-establish positions.

Assuming no significant changes in world economy, we plan on eventually shifting our oil based investments to water based investments. PHO will be the first water based investment position.

We'll let our mining stock/ETF positions in Rio Tinto (RTP), BHP Billiton (BHP) and Gold (GLD) continue to run until the velocity of their price appreciation plateaus or slows considerably. Once this occurs, will consider shifting these funds to financials, utilities and/or health care. I envy those who invested in the silver sector. We missed the silver run (so far)... We're keeping our eyes peeled for good deals on sterling silver in the mean time (garage sales, estate sales, etc.)

Disclaimer: I’m not a day trader or other chart interpreting specialist. I’m just going on hunches and my own interpretation of global macro-economic trends.



Anonymous said...

Why shouting about crude oil price !
The racist, criminal and bastard west exploited the world. Why they do not want to give their things are free or cheaper. Like the most essential food, medicine, clothings to gold, weapons, computers etc. I would expect and suggest the crude oil price should rise to a $1000 unless the criminal and crazy bastards are able to walk like the other peoples are walk by foot anywhere in the third world. It would change the face of ugly white basterds like the poors. Already it happen little bit, like if we look at the face of bastard bush or rice we almost get vomit, it is very hard to keep our spit.

Market Participant said...

Aside from that little bit of spleen.

I think the IGE ETF is the best way to play the whole natural resource bull market. At this point though I think natural resources are somewhat overbought, since everyone knows about them.

The big question at this point is are they overbought enough?

Finance Junkie said...

thanks for the tip on TLCP.

Finance Junkie said...

Market Participant left the following comment that for some reason isn't publishing:

"TCLP is a publicly traded partnership. I would be *very* careful about putting it into an IRA. Partnership units also create a tax nuisance with their K-1 forms. But if you still want to own partnership units, I recommend Sunoco Logistics Partners SXL to go with your holdings of TCLP.

TCLP's dividends are considered to be "Unrelated business taxable income" UBTI which are prohibited in an IRA. You should consult an experienced tax accountant about this issue."

Finance Junkie said...

Here's the AAA site that gives national average gas prices:

I'm using it in conjunction w/ the target crude price ($79.71).