Major Development
Please click here for an enlarged chart of Halliburton Co (NYSE:HAL).
Note the following:
- This article is about the big picture, not an individual stock. The chart of HAL stock is being used to illustrate the point.
- President Trump has extracted Venezuelan President Maduro by force. Maduro is being produced in front of a court in New York. President Trump has said that the U.S. will run Venezuela and invest billions in oil.
- Venezuela has the world's largest oil reserves of roughly 303 billion barrels of crude oil.
- A major beneficiary of developments in Venezuela is oil service company Halliburton. As full disclosure, HAL is in our portfolio.
- The chart shows the gap up in HAL stock in the early trade on the prospects of Halliburton getting significant business in Venezuela.
- The chart shows that HAL is now overbought. Overbought stocks are vulnerable to pullbacks.
- Here are other winners from developments in Venezuela:
- Chevron Corp (NYSE:CVX) is the only major U.S. oil company operating in Venezuela and controls about 25% of Venezuela's oil production.
- ConocoPhillips (NYSE:COP) has about $10B in claims against Venezuela that may be worth about $20B including interest and fees.
- SLB NV (NYSE:SLB) is a major oil service company.
- Valero Energy Corp (NYSE:VLO) and PBF Energy Inc (NYSE:PBF) are two refiners that will benefit from an increase of availability of Venezuelan heavy crude oil.
- Those looking for higher reward situations may look at two microcaps:
- Rusoro Mining Ltd (OTC:RMLFF) has gold mining properties in Venezuela. It owns 95% of Choco 10 mine and 50% of Isidora mine.
- Gold Reserve Ltd (OTC:GDRZF) is a Bermuda company that has been involved in gold and copper mining in Venezuela and has claims against Venezuela for expropriation. Gold Reserve, at present, has no active mining operations in Venezuela.
- Those interested in ETFs may look at VanEck Oil Services ETF (NYSE:OIH). As full disclosure, OIH is in our portfolio.
- All of the foregoing stocks and the ETF are gapping up as of this writing in the premarket. Momo crowd buying is very aggressive. Unlike the momo crowd, prudent investors should control the FOMO (fear of missing out) emotion.
- In our analysis, here are the key points prudent investors should consider that the momo crowd is ignoring:
- Years of leftist rule have left oil infrastructure in Venezuela in shambles.
- Venezuela is producing significantly less oil now than it was producing 10 years ago.
- It will take tens of billions of dollars of investment and a long time to bring Venezuelan oil back to full production. Expect the momo crowd that is buying today to be disappointed because there will not be a quick increase in oil production.
- So far, there has not been significant resistance in Venezuela, but that does not mean that resistance will not emerge.
- The U.S. has now given presidential powers to Venezuelan Vice President Rodríguez, who has been an anti-U.S. crusader all her life.
- Prudent investors should be especially careful to not fall prey to the highly flawed analysis propagated by momo gurus. Momo gurus are multiplying 303B barrels by $57 per barrel to come up with $17.3T, then they are extrapolating that even if the U.S. gets 50% of it, the U.S. just got $8.7T. Nothing could be farther from the truth than this flawed analysis. In our analysis, Venezuelan oil is highly viscous heavy crude that is high in sulfur. It is expensive to extract. In the end, the margin for oil companies may only be $5 – $7 per barrel. Further, it is not that 300 barrels are sitting in a warehouse. The oil is in the ground, and some of it may be very challenging to extract.
- There are also many losers from the Venezuela development. Two notable losers are Canadian oil companies Suncor Energy Inc (NYSE:SU) and Canadian Natural Resources Ltd (NYSE:CNQ). It may be easier to make money from the short side. Short selling signals will be in our report.
- In our analysis, the big win for the U.S. is that Venezuela will no longer be selling oil to China in yuans. For the dollar to stay king, it is important for oil to continue trading in dollars. China has been working hard to topple the king dollar. China had made great progress towards its goal by persuading Venezuela to sell oil in yuans.
- In our analysis, China is the big loser here in the short term. Tensions between the U.S. and China may increase. Here are the beneficiaries:
- Investors should be mindful of crosscurrents that always exist in the markets. For example, Taiwan Semicndctr Mnufctrng Co Ltd (NYSE:TSM) would have been down this morning on the Venezuela news, but instead it is up because a major Wall Street bank increased its target by 35%.
- There is jubilation in China as many in the Chinese media are claiming that the U.S. has just handed a blueprint to China to capture Taiwan. The momo crowd is oblivious.
- Gold and silver are the winners in the short term from the Venezuela situation. However prudent investors should be aware that Venezuela's central bank holds 161 tonnes of gold. Further, 31 tonnes of Venezuelan gold is being held in the Bank of England's vaults and is tied up in litigation. If some of Venezuela's gold is sold, it can potentially cause a major dip in gold and silver.
- What has happened in Venezuela is a major development. Prudent investors should take time to fully grasp its implications in the short term and long term. Be careful as the media is full of highly flawed analysis driven by agendas that are not in investors' best interest.
- Both NVIDIA Corp (NASDAQ:NVDA) and Advanced Micro Devices Inc (NASDAQ:AMD) CEOs are giving keynote speeches at CES. Historically, these speeches have run up not only NVDA and AMD stocks but all AI stocks. Wall Street is front running, buying AI stocks in the hope of selling them to retail investors at higher prices.
- Friday will see the first jobs report not impacted by the government shutdown.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, it is important to pay attention to early money flows in the Mag 7 stocks on a daily basis.
In the early trade, money flows are positive in Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), NVIDIA Corp (NVDA), and Tesla Inc (NASDAQ:TSLA).
In the early trade, money flows are neutral in Microsoft Corp (NASDAQ:MSFT) and Meta Platforms Inc (NASDAQ:META).
In the early trade, money flows are negative in Apple Inc (NASDAQ:AAPL).
In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ).
Momo Crowd And Smart Money In Stocks
Investors can gain an edge by knowing money flows in SPY and QQQ. Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil. The most popular ETF for gold is SPDR Gold Trust (NYSE:GLD). The most popular ETF for silver is iShares Silver Trust (NYSE:SLV). The most popular ETF for oil is United States Oil ETF (NYSE:USO).
Oil
OPEC+ decided to leave production unchanged.
Bitcoin
Bitcoin (CRYPTO: BTC) is seeing buying.
What To Do Now
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.
You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.
A protection band of 0% would be very bullish and would indicate full investment with 0% in cash. A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash. When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.
Traditional 60/40 Portfolio
Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.
Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.
The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.
Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
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