We’re not going to buy oil stocks today… But we’re getting close.

The price of a barrel of oil is down 18% in the past two months alone. Oil stocks have also fallen hard. The AMEX Oil Index (XOI) is off 13% after peaking in early May.

[ad#Google Adsense 336×280-IA]The commodities exchanges have increased the margin requirements for speculators trying to buy oil futures. And President Obama just agreed to release oil from the Strategic Oil Reserve.

It appears everything is lining up for oil prices to fall further. Indeed, it’s tough to make a bullish case for oil prices right now… But it is under these conditions where it makes the most sense to buy oil stocks.

That may seem like twisted logic at first. But remember a couple months ago when oil was trading at its highest price of the year? Oil prices were rising. There were riots in the Middle East. Libya and Syria were under fire. American motorists were entering the summer driving season.

Oil stocks were trading at their highs. And it seemed everyone was bullish on the sector.

I cautioned at the time that it was a bad time to buy oil stocks.

Today, we have nearly the exact opposite conditions. And I’m telling you… oil stocks are starting to look good.

The bullish percent index for the oil sector (BPENER) – a gauge of overbought and oversold conditions – is approaching its most oversold level in a year. Take a look…

Of course, oil stocks can get more oversold, especially if the overall stock market continues to get hit with selling pressure. In fact, the BPENER doesn’t generate a long-term buy signal until it drops below 30 and then turns higher. It may take several more days for that to happen.

[ad#article-bottom]But we are getting close to bargain-basement levels here for some of the bigger names in the sector.

If you were thinking about buying into the oil sector a couple months ago but took our advice and waited, you’re able to get in at far better prices right now.

It’s not quite time to back the truck up and buy the whole sector just yet. But a nibble or two on some of the major oil stocks looks like a good deal here.

Best regards and good trading,

— Jeff Clark

[ad#jack p.s.]

Source:  The Growth Stock Wire