Oil and the Recovery: A Leading Indicator to Watch
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*****Oil and Recovery

*****Deflation vs. Inflation

*****Graham Corp.

Oil prices have moved over $50 a barrel. There are a few factors at work here. OPEC's cut production. Of course, that's been ongoing, and OPEC's moves have done little to prop up prices as demand around the globe falls.

Crude started moving higher after the recent stock market rally began. Bernanke was out, attempting to soothe investors with his "Recovery in 09" campaign. And if there is to be an economic recovery, oil demand will rise. That's as direct a relationship as there is in the financial markets.  

Oil rallied again after Bernanke announced that the Fed would buy over $1 trillion in various kinds of debt. The market thinks the Fed's move will help. We know, because oil moved higher.

Could it also be that investors think the increase in the money supply and consequent weaker dollar will cause prices to rise? Absolutely. And in fact, that's part of Bernanke's plan. The Fed is still concerned that deflation is a threat to the US economy.   

*****Yesterday, I said it might be a good time to get back into Graham Corp. (AMEX:GHM). Graham is one of my favorite small-cap stocks. It's in the oil and industrial services sector. Among other things, Graham retrofits refineries so they can handle sour crude.  

Graham is profitable, has a large backlog of work orders, a solid cash position and reasonable valuation.  

The stock has been very volatile as investors try to determine appropriate valuations for oil services stocks. Graham is hitting its 50-day moving average right now. A breakout will take it beyond $10 a share. 

*****Two days ago, Jason Cimpl, technical analyst at TradeMaster Daily Stock Alerts, saw a perfect set up for a downside trade on one of Wall Street's biggest banks. This bank is right at the center of the secret AIG payment scandal. The stock is down 10% since Jason recommended this trade, but he thinks it's going to fall much further. It's a great short play if you're interested in quick gains. For more, click HERE.

What are you thoughts on oil prices, the recovery, Bernanke's $1 Trillion buying spree? Do you hold shares in Graham or other oil stocks? Are you profiting from them? Leave a comment below. I read all reader comments to my articles.

That's it for today. Have a great weekend…

Best regards,

Ian Wyatt
Editor
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Posted 03-20-2009 2:44 PM by Ian Wyatt