What Happens As Oil Falls

Oil has fallen over $10 per barrel.  What does this mean for stocks?  You would think they would be going up.  But, they aren’t.  Especially the alternative energy stocks.  Even though these stocks are becoming more and more profitable by the day, they still move with the price of oil.  If oil goes down to the very low price of $100 (hint of sarcasm), the solar stocks will continue to fall.  

Even though material stocks have been a great investment over the last several years, they’ve gone through their 40% & 50% corrections.  If you’re not willing to ride this wild fluctuation out, then this is the time to exit the solar stocks.  First Solar (FSLR) has already fallen from $320 to $240.  JA Solar (JASO) has fallen from $27 to $20.  The alternative energy ETF has fallen 10%.  More downside may be coming.  

When oil went over $130, that seemed to be some tipping point.  Stocks sold off sharply, the outrage over high gas prices skyrocketed, and we heard of hoarding by tanker companies.  Alternative energy will continue to develop at a rapid rate even with oil at $75 per barrel.  So, should these companies be falling this fast just because oil has gone down $10-$15?  No, but that’s where we get our opportunity.

We’ve gotten those opportunities the past several years when agricultural stocks have sold off.  We’ve had emerging market stocks fall hard.  We’ve even had oil companies fall hard.  But, because we’re in a long-term secular bull market for anything having to do with global growth, you could have bought the dips.

Alternative energy stocks will go through these big dips over the next few years.  Let’s remember that oil is correcting now but I don’t doubt it’ll be at $200 over the next few years.  That’s the reality.  But, for now, it’s correcting and that’ll bring down energy companies and those alternative energy companies.  

Build your shopping list now as they often fall hard and subsequently rise hard.

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June 2008
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