Oil in Focus

Despite the demonstrations remaining mostly peaceful for now, there is still apprehension of possible supply disruption through the nearby Suez Canal. Oil stocks, which have been extremely strong since September, have gotten a further boost due to the unrest. Schlumberger Limited (SLB) is our favorite in the oil group, and technically the stock began to breakout above $88 yesterday. Others we like in the energy group are Halliburton Company (HAL), EOG Resources, Inc. (EOG) and Devon Energy Corporation (DVN).

Buy on Pullbacks: FCX and WLT

At this stage of the rally, you are not getting paid trying to buy every breakout, but you need to switch your mindset to a "buy the dips" mentality, says Marc Sperling of T3Live.com. Two stocks that fit the bill are gold and copper miner Freeport-McMoRan Copper & Gold Inc. (FCX) and coal producer Walter Energy, Inc. (WLT).

Freeport has gotten hit in January as gold and silver prices have pulled in, but has found a floor above $105. The stock should get back to highs around $122 over the next few weeks. Walter operates in the coal sector, which got a lift when Alpha Natural Resources Inc. (ANR) paid a 55% premium to acquire coal giant Massey Energy Company (MEE).

Gold, Silver Looking to Continue Bounce

Gold and silver have been weak over the past few months, since gold's false breakout on September 9. The yellow metal tried to break out again, and failed. Then on the first trading day of 2011, gold failed again and had a pro gap down the next day, putting in a solid triple top and setting the stage for a significant pullback, says Scott Redler of T3Live.com. Gold capitulated to the downside last Thursday, but engulfed nearly that entire red bar the following day as investors saw a tremendous opportunity to get back involved.

The problem with gold and silver is that there has been no real discernible cost driver in recent months as economic data in the US has improved and Europe has avoided further bailouts. The unrest in Egypt perhaps reignited the fear component of the gold trade as investors seek a flight to safety in case the protests escalate and/or spread. Today's million-person march could ramp up those fears. Silver outperformed gold in 2010, and was much stronger yesterday after also reversing course Friday. Redler still believes we should be in "buy the dip in commodities" mode.