Three Energy Stocks on the Rebound

The market continues to vacillate wildly from day-to-day, frustrating the majority of the investing public. That is one of the reasons it is important for investors to have a disciplined investment approach and a set plan on how they're going to deal with this type of volatility.

It is important for the prior leaders in technology and commodity stocks to lead us out of this current correction. If that doesn't happen, it may be a signal that there is going to be more downside pressure ahead.

Last week my indicators were entering into a very oversold area, and as a result, I believed we would be likely to see a sharp bounce sometime this week. Currently, as I'm writing this column this morning, the market is down over 138 points, but there may be some light at the end of the tunnel. The one thing I am noticing is that leading tech stocks like Apple , Oracle , Research In Motion and Google are trying to hold their ground. That is a good sign that we may see a turn in the next day or two.

I'm also noticing that many of the oil and oil service stocks are holding their ground after the recent pullback that they have had. It is amazing how some of the stocks have been hammered when the fundamentals of their industry continue to remain extremely positive.

If we can't produce enough oil now to effectively supply the current demand, then how are we going to handle the supply/demand situation in the long-term, especially with China and India demanding more and more resources.

Currently, China consumes only about a third as much oil as the United States. However, by 2030, China and India will import is much oil as United States and Japan do today. With that type of increase in demand, the world will either need to find some solid alternative solutions, or $100 oil will look cheap.

Encana has corrected back down to support, and its 50-day moving average. ECA is more of a natural gas play than oil, but I do believe that utility companies are going to continue to lean toward using this cleaner fuel than coal. Earnings are expected to drop from $5.39 in 2007 to $4.91 in 2008 according to First Call, but that number may be low if the current utility demand continues to increase.

Technically, the stock may be ready to challenge the November highs if it can consolidate in this area for several days. This could be a fairly low-risk place to take a position because a protective sell stop could go underneath the $65 area.

When it comes to oil-field services, you would be hard-pressed to find a better company than the gorilla in the industry Schlumberger . The shares fell over 11% on Oct. 19 after the company reported an overall profit of 35%. That number was not below expectations, but many investors became concerned because SLB's revenue fell 3% in North America.

That weakness has continued to remain in the shares over the past several weeks, with the price drifting down into the low 90s. This 16.5% correction from recent highs may give investors an opportunity to pick up a bargain if the fundamentals continue to remain strong.

The shares have quite a bit of resistance near the $100 level, but the risk should be limited if you used a protective sell stop under the $90 support level.

Transocean reversed sharply off of the 50-day moving average on Friday, moving up over 3%.

With the need to find more oil, especially in deeper areas of the ocean, RIG should continue to profit handsomely. In fact, earnings are expected to increase from $8.06 in 2007 to $11.47 in 2008 according to First Call estimates.

If the $115 support level continues to hold over the next few days, we will likely see the stock challenge its November highs in near future.