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ETF Periscope: USO Offers Opportunity for a Slick Oil Play

Posted on the 29 May 2012 by Phil's Stock World @philstockworld

I must have a prodigious quantity of mind; it takes me as much as a week sometimes to make it up.”  — Mark Twain

ETF Periscope: USO Offers Opportunity for a Slick Oil Play
After a rather traumatic month of May that saw investors refocus on the Eurozone sovereign debt crisis with a vengeance, there now seems to be emerging a shift in the winds in terms of sentiment concerning the monetary union’s chances of survival.

Wall Street apparently likes to buy into new renditions of this same song with great regularity. It usually occurs after a EU summit, when the current round of leadership makes pledges galore, smiles in unison, and professes acknowledgement that the Eurozone must remain intact at all costs.

In turn, the market shows its appreciation for the gesture of solidarity with a wave of buying, often with just the right level of support to bring the major indexes back to the levels it had most recently tottered from.

This time, the positive spin on the Eurozone debt/banking crisis emerged from a two-pronged front.

First, word out of Greece this weekend was that the upcoming June election might end up with a pro-austerity candidate. This naturally would bolster the equity markets on both sides of the Atlantic, as it increases the likelihood that the latest bailout of Greece, courtesy of the European Union (EU) and the International Monetary Fund (IMF), will actually get paid back, and the Greeks would be casting a de facto vote for remaining within the Eurozone.

The other piece of news that grabbed investor’s attention was the fact that Germany’s Angela Merkel appeared to be somewhat more willing to discuss the matter of Eurobonds, a joint effort by Eurozone members to pooling the region’s debt liability. Eurobonds has been regarded as one of the few tangible solutions for its debt crisis, but Merkel has consistently balked, stressing that it is outside the boundaries of the existing EU law.

Still, the fact that France’s new president seemed intent on keeping it at the forefront of a special EU summit indicated to observers that it now might gain further traction, particularly as France and Germany must reach a modicum of agreement if the euro is to remain intact.

The remaining headlines for the week must be regarded as something of a split decision, as upbeat U.S. economic data seemed to stalemate the further deterioration of Spain’s economy, as evidenced by Spain’s Bankia SA’s request for about $24 billion in bailout funds.

Finally, the noise out of the Middle East bolstered the price of crude oil. Iran run afoul of the International Atomic Energy Agency when it became apparent that it had doubled its enriched uranium supply level. Syria also caught the attention of investors in a negative way, as increased bloodshed by the government signals that instability in that region will likely remain high for the near future.

The fate of the remaining trading sessions of this holiday-shortened week will no doubt rest upon the level of volatility that Wall Street reads into the tenor of this broad menu of international events.

What the Periscope Sees
With oil having corrected sharply over the course of the last four weeks, and with a slew of volatile political and social elements currently emerging or reemerging onto the scene, it may not be a bad time to consider an addition of some energy into your portfolio.

USO (United States Oil Fund), which tracks the price of light sweet crude, currently sits at a seven-month low. While there is certainly lots of room for the ETF to drop should the world economic picture weaken further, there remains a lot of upside, due primarily to the volatility of global politics and the strong support that OPEC pledges to provide at the current price levels.

For these reasons, USO may serve as a good way to prop up the energy portion of your current portfolio, or to serve as a way to hedge against global volatility.

As a reminder, The MacroReport is Sabrient’s newest product for the investment professional. This is a monthly co-publication of Sabrient Systems and MacroRisk Analytics, providing an in-depth analysis of the macroeconomic trends in focus territories around the world and their impact on the U.S. economy, along with actionable ideas (U.S. stocks and ETFs) intended to capitalize on a given outcome. Complimentary access is available on our web site through MacroReport InterActive. The inaugural March issue focused on Greece. The current issue focuses on China. The next issue, slated to be released next week, will look at oil prices and the global issues that impact it.

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

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