Blog : Penny Stock Picks from Peter Leeds

by Peter Leeds on April 19th, 2016

The following is an example of some of the guidance provided by Peter Leeds to his subscribers.  Along with his personal trades, Peter and his team also provide their top stock picks with full analysis reports.  You can see them all here...

An Important Note From Peter Leeds:

There is a lot to say about this initial topic, so I'll tell you my trade first, then explain the background and reasoning.

Late Thursday or Early Friday, I will be shorting USO (the exchange traded fund which tries to mirror oil prices).  When you sell short, you are betting that the investment will decline in value.  If USO falls, I will profit.

I expect oil prices (and therefore USO) to drop on Monday.  I will take my profits (or losses) early next week, probably by Tuesday or Wednesday.  My reasoning is as follows:

You may have heard us talk about the "Buy the rumour, sell the fact" concept (as discussed here).  Well, it is playing out right before our eyes with oil prices.

It is common knowledge that there will be a meeting in Doha, Qatar this Sunday.  The purpose is for various oil-producing nations to discuss an oil output freeze.

The expected cooperation of the numerous nations involved (Saudi Arabia, Russia, United Arab Emirates, Qatar, and others) has been enough to drive Brent Crude oil prices from $37.50 to above $44 dollars since April 4th.   This near 20% drive higher (which is massive considering the huge and complex underlying supply system) is based entirely on theoretical cooperation, rather than any fundamental supply/demand shifts.

Russia, the nation which sells more oil than any other, is talking about freezing production levels, but behind the scenes they are aggressively increasing output.  Saudi Arabia, the other most important player at the Doha meeting, has publicly stated that they will not support production cuts, even if they favour the production freeze.

No one even seems certain what a potential deal might look like, but Iran has already said they are committed to increasing output to pre-sanction levels, regardless of any Doha agreement.  There are also other notable players (oil exporting nations) who are not a part of, or bound by, the Doha talks (and thus will happily produce oil at these higher prices).

The point is, even if there is a great, wonderful deal to freeze production, and all the multivarious parties somehow miraculously agree to cooperate, the impact has already been priced in.  Oil prices are reflecting "Doha Deal Perfection" right now, so even if everything goes according to some divine Middle Eastern production plan, oil prices are very unlikely to rise much further, and probably will fall (deal or not).

On the other hand, any hiccup or obstacle or deal collapse would lead to an even more significant price drop.  And thus a slip in the USO price.

In other words, don't believe the hype.  Oil prices have climbed based on rumours and speculation about what "might" or "should" happen, but they have gone much too far, too fast.  People have been buying the "rumour" like crazy, but now comes the Sunday Doha meeting, and it is time to sell the fact.  Or short USO.

Peter

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NOTE:  You will see Peter discusses "short selling" when he wants to profit from a stock declining in value.  Here is Peter's explanation of Short Selling.

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