Published: June 1, 2010

Take a look at my forecast chart for United States Oil Fund (NYSE: USO), an exchange-traded fund (ETF) whose units' net asset value tracks the performance of the spot price of West Texas Intermediate light.

Notice that the forecast is calling for USO to drop down into the $33 range by this Thursday, before moving back up over $36 by the end of the month. But I am not trading USO... not by a long-shot. Here is why... Check out this Yahoo! Finance comparison chart between USO and Brigham Exploration Co (Nasdaq: BEXP)...

BEXP is almost like trading a supercharged version of the USO. Check out the ovals and how much more BEXP moved up AND down relative to USO. If you look back over a year, this "ultra"-action compared with USO becomes even more evident. Bottom line: BEXP has a lot more bang for the buck. But... and this should not be overlooked... BEXP will hit you hard with significantly bigger losses if oil breaks to the downside.

However, my forecast charts indicate that oil should move higher. Two weeks ago, I began telling you that oil was potentially setting up for a great rally to start at or near the end of May. And that is still looking to be the case. How did I know this was likely to happen? It wasn't because of fundamentals or technicals or because I am, somehow, clairvoyant.... No, it is simply because of the uncannily accurate forecasting of my time-cycle technology.

While the overall market is down a little over -10% in this current correction, many oil companies are down -20%, -30% and some even more. Relative to the broader market, this means many of these oil companies are significantly oversold and underpriced.

Add to this the fact that China continues to demand more and more oil with an economy expanding at +8%. Yes, Europe is in financial straits, but that doesn't mean it is not in need of oil, and a lot of it. The U.S. government is shutting down or severely curtailing oil drilling in the Gulf of Mexico and although this does not have an immediate impact on the price of oil, it is still taking supply out of the system, which will ultimately help drive the price of oil higher. The higher the price of oil, the more money oil companies make even if they do not increase their percent of profit margin. The more money flowing into the likes of BEXP, the more investors will like the stock, and the more demand for shares of BEXP, the higher the price is likely to move.

Hurricane forecasters predict this year's hurricane season could be the worst in several years. One or two hurricanes in the Gulf of Mexico could add even more peril to a fragile supply line for oil and gas, for that matter.

It would not surprise me to see oil hit $90 or more per barrel sooner rather than later.
On Friday, crude oil fell just below $74 per barrel.

Here are the details on BEXP...

The first thing that should jump out at you is BEXP has not only plummeted during the past three weeks, it has fallen so low as to have triggered a technical "out"... This means, strictly on a technical consideration, you should not own shares of BEXP. And the fundamental picture isn't much better, given the fact that both BEXP's industry (oil and gas operations) and its sector (basic materials) are struggling.

However...and this is the key...because of the confidence I place in my forecast models, which predict higher oil prices in June, I believe BEXP is setting up for a potentially significant move higher.

As an investor, you know that nothing in life is guaranteed except death and taxes... to use an oft-referenced phrase. I am not telling you to bet the farm on BEXP, and neither am I guaranteeing that oil will move significantly higher in the coming month (in fact, if that forecast proves wrong, BEXP could move much lower).

What I am telling you is that -- based on what my proprietary forecasting models are telling me -- I am investing a significant portion of my money into oil-related stocks, and one of my favorites is BEXP. I have others, and I reveal these in my premium service, Mastering the Markets. For more information, click here.

-- Mike Turner
Editor, Mastering the Markets, Trade of the Week
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