How to Cash in on the Oil Matrix
As we approach this month’s Federal Open Market Committee meeting, all eyes are once again on the Federal Reserve.
Improving economic data has prompted some increasingly hawkish comments by Fed officials ahead of the June 17 decision.
And the probability of a June interest rate increase has jumped from the single digits to more than 30% in the last few weeks.
But while investors hang on every word and movement of the Federal Reserve, I’m watching the dollar.
Or rather, how the greenback reacts to the Fed’s moves.
After falling 8% between January to April, the dollar has jumped 4% in the last month, based on the prospect of a rate hike.
This is great news for Treasuries, but bad news for commodities.
However, one asset class is bucking this downtrend.
And if you missed the rally earlier this year, here’s how you can catch the next leg up.
Crude oil has been on a tear in 2016.
Since bottoming out on February 11, 2016, West Texas Intermediate (WTI) crude oil has gained an eye-popping 84%.
Of course, falling rig counts and the prospect of coordinated production cuts have helped to send oil soaring.
But one of the key drivers of this explosive uptrend is, undoubtedly, the dollar.
You see, oil is priced in dollars. So, as you might imagine, the two have a generally opposing relationship.
When the dollar rises, it subsequently takes more dollars to buy crude. As a result, demand for oil – and in turn, its price – often falls.
As you can see, the price of WTI plummeted as the dollar rose in late 2014, and early in 2015.
Conversely, WTI ripped higher through from February when the dollar retreated.
But as I mentioned earlier, the dollar has crept up since bottoming in April.
And while the price of crude hasn’t fallen much yet, we can expect a healthy pullback if the greenback’s rally holds.
Here’s how you can play the effects…
Leading the Pack
Antero Resources Corp. (AR) is an independent U.S. oil and natural gas company. The company holds 569,000 net acres of oil and gas properties in the Appalachian Basin.
They also own and operate nearly 250 pipelines in the Eastern United States.
Since going public in October 2013, Antero’s stock has spent the majority of its time on the market in a downtrend.
From an all-time closing high in March 2014 at $67.41, to the December 2015 all-time bottom at $19.12, shares have fallen 72%.
This, of course, is due to the implosion of the oil market in 2014.
But Antero’s financials tell a different story…
Over the last three years, its annual revenue has more than doubled, to reach $3.9 billion in 2015, even while the price of oil has dropped.
Cash from operating activities has also grown by 88% during the same period.
And the company holds $4.7 billion in debt – 30% less than the peer average.
This year, Antero shares have finally started to reflect their improving fundamentals.
The End of the Trend
Since the start of the year, Antero has gained 30%. That’s more than twice the rise of the Energy Select Sector SPDR Fund (XLE), and well above the S&P 500 Index’s 2% increase.
Antero also overtook its 200-day moving average (DMA) for the first time since 2014 – another sign of its trend strength.
And, best of all, the stock’s most bullish indicator flashed last week.
You see, shares broke their two-year downtrend last Friday.
Downtrend breaks on heavy volume indicate the bulls have overpowered the bears and forced a momentum shift.
Broken downtrends don’t always lead to massive gains right away.
But traders love these chart patterns because previous resistance often becomes support, providing a sturdy price floor for shares.
Bottom line: The dollar’s renewed strength spells near-term weakness for crude, but it won’t hold oil down for long. So, consider taking advantage of oil’s pullback with one of energy’s strongest stocks.
On the hunt,