Is It Only Temporary?

November 1, 2021  |  Michael Reilly

Inflation is grabbing a lot of headlines these days – and for good reason.

Another jump in consumer prices last month sent inflation up 5.4% from where it was just a year ago, which matches the largest increase since 2008, as a tangled global supply chain continues to create havoc, not just here in the United States, but around the world.

Like many things, Energy prices are hitting the highest level in years, including natural gas and crude oil.

But if you listen to the noise out of Washington, you have nothing to worry about – because, word is, inflation will abate sometime in the middle of 2022. 

How nice for us… 

This begs the question, what should you do in the meantime?

You have two choices really. Continue to complain about inflation or learn to profit from it!

For those of you in the camp of profiting, please read on…

Because today’s message will focus on oil prices and how investors like you could profit from oil’s next move.

Here’s a monthly price chart of WTI Light Crude Oil over the last twenty years. 

There are two notable things for investors to take from this chart. 

  1. This year’s rally broke a major resistance line extending all the way back to 2008. That’s a big deal.
  2. WTIC has climbed above its 2018 high to reach the highest level in seven years. 

2018 was when risk assets around the world peaked and began to decline. Any time an asset can break above a former notable peak like that one, it’s an indication of strength.

Add the fact that WTI broke above a 13-year downtrend line and moved above its 2018 high, and it suggests the strong probability for even higher prices. 

Now let’s take a closer look at what the Energy sector looks like using the SPDR ENERGY Sector ETF XLE as a proxy.

Here’s a weekly chart of XLE:

XLE now sits at its highest level in six years. And similar to WTI, you can see how price is testing a major resistance line drawn over its 2014-2016 peaks. 

Assuming XLE breaks out decisively above that down trendline, the next potential upside target for this Energy sector ETF would be that important 2018 peak around 65. 

Now, many of you may look at both of these charts and see the sharp move higher and be frustrated that you didn’t see this sooner. You assume all the profits have already been made.

Yes, prices have moved up sharply for both WTI and XLE, but that does not mean you have missed the proverbial boat. 

Because one thing we know for sure – prices trend. 

And a trend in motion tends to stay in motion. 

Your ability to spot a trend and take advantage of it is in direct correlation to your bottom line.

Regardless of inflation’s status as transitory or not, there are plenty of opportunities to use inflated prices to your advantage.

Below are just a few of the many investment opportunities that await shrewd investors right now. 

Here are some of the names that are members of the SPDR Energy Sector ETF XLE:

  • XOM – Exxon Mobil
  • CVX – Chevron Corp
  • EOG – Schlumberger
  • DVN – Devon Energy
  • OXY – Occidental Petroleum

For investors interested in energy opportunities using ETFs, here’s a list for you to dig into.

  • OILNF iPATH Goldman Sachs Crude Oil ETN
  • FTXN First Trust Nasdaq Oil & Gas ETF
  • DBO Invesco DB Oil Fund
  • FCG First Trust Natural Gas ETF
  • BNO Unites States Brent Oil Fund LP

With the expectation of inflationary pressures continuing until sometime into 2022, and with the prospects of President Biden’s Infrastructure initiative beginning in earnest sometime next year, it’s hard to imagine the energy space not acting as one of the biggest beneficiaries.

So, complain about higher prices or be rewarded for them. The choice is yours.

Until next week, safe investing.

PS: Want these kinds of insights applied directly to your portfolio as they’re seen? To make the whole investment process easier, give us a call. We’re opening our doors to new investors who have portfolios valued over $500,000. If you’d like to schedule a free 1-hour consultation to review your portfolio, click here.

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