Welcome back from Black Friday weekend, friends and fellow traders. Can you believe it's the first day of the last month of the year already? Time really does fly, huh? Anyway, our goal is finish the year strong, and for us this means equipping you to be the most profitable and well-armed trader you can be. Before we get to the meat of today's newsletter though, we've got some trading business to take care of. Time to Do Something With JBLU Remember how back on October 16th we told you John Monroe over at the Elite Opportunity suggested JetBlue (JBLU) as a swing trading idea? Yeah, well, as of today the stock has climbed 30% since his call. It was trading around $11.20 then, and was somewhere near $14.60 at today's close. Please oh please tell me you picked some up at the time. Now, if you did pick some up, while I don't want to tell you what you should do with it, I don't mind telling you this is a situation where you should do something proactive with JetBlue. Whether that means lock in some or all of your gain, or if it just means moving your stop-loss up on the trade, I don't know - that's up to you and your timeframes and risk tolerances. I'm just saying there comes a time to take action and defend the unrealized gain you've got, 'cause nothing lasts forever. If for some reason you didn't pull the trigger on JetBlue back in mid-October, well, unfortunately we don't have a time machine. We do have the next-best thing though... a way to not miss the next great trading idea John Monroe is will to share with you, for free. A couple of weeks ago we separated the commentary part of this newsletter with the stock-picking part, and basically delegated the stock-picking stuff to the Elite Opportunity team. They agreed to give us a handful of stock picks every week or so - as the opportunities arose - and we all agreed the best way to deliver those trading ideas would be by text alerts and in a separate set of e-mails. It's worked beautifully already. Those of you who have signed up have already benefited from John's picks of Target (TGT) and the Vanguard FTSE Europe ETF (VGK), and a few more newer picks that are looking plenty juicy too. Well folks, good news - it's not too late to add yourself to the stock-pick mailing list, and better still, to the free text alert notification list. You can do either, but I recommend both. The text messages tell you the tickers, while the e-mails offer a deeper explanation of the picks. If you haven't signed up yet for this service, do so today. Your portfolio will thank you for it. Here's how to get it, or just cut and paste this link: https://www.smallcapnetwork.com/pages/SCNEOL/v1/ Oil: It's Now a "Survival of the Fittest" Situation Thanks for all the positive (and even the not so positive) feedback regarding last Friday's deeper look at the reality of the recent plunge in oil prices. I know we've mentioned this before, but it bears repeating now... we read every e-mail you guys and gals send us, and where it's appropriate, we respond. Sometimes we respond right here in the newsletter, if it's an answer that will do everybody some good. We're still sifting through all the responses to Friday's commentary, so we don't have a public response to anything specific just yet. We do have a broad response we want to serve up to you though, based on your questions and comments. Here goes. While on the surface it looks like OPEC is just pressing our buttons by not lowering their oil output to buoy crude's price, truth be told, the Saudis and most of the Middle East can afford to do so. If it comes down to a price war between OPEC, Russia, and the United States, the U.S. and Russia will flinch first. Why? It's just simple economics. Consider this the proverbial "rest of the story" to Friday's newsletter. The fact of the matter is, there ain't nobody in the world that can drill for oil as cheaply or as easily as most OPEC countries can. On the flipside, there are some American explorers and producers that can get pretty darn close. The figures vary slightly from one source to the next and from one year to the next, but generally speaking, the Middle East's onshore oil production costs are only about $30 per barrel. Most other onshore production costs at other places on the globe are about $50 per barrel. The average cost to produce a barrel of shale oil in North America is an average of about $65 [though I want to come back to this factoid in a moment], and the typical oil sands operation costs about $75 per barrel. As of last week, the average shale operation was just breaking even, and some oil sands sites were operating in the red. This chart from Rystad Energy of Morgan Stanley's figures illustrates all the various cost structures by geography This graphic I believe came from the IEA, though my source was financialsense.com and they didn't attribute it as far as I could tell. (Click on the chart for the full-sized version.) Whoever made it, the story is the same - Saudi Arabia only pays about $25 bucks to extract a barrel of oil, and the rest of the OPEC countries only pay about $36 dollars. Russia only has to spend about $48 to lift a barrel of oil. The average oil drilling cost for the United States not counting shale oil is about $42 per barrel. After that, costs go up to more than $70, with Canadian oil sands at the extreme end of the cost scale. U.S. shale operations tend to be at the high end of the cost scale on this chart too, with a typical cost of about $65 per barrel. Now, there's one point I want to make now and one I want to make in a moment. The first key point is, OPEC can afford to play a game of chicken with oil prices a lot longer than we can. Will they? I don't know, but they can. Russia isn't exactly empty-handed on this front either. Don't be shocked if OPEC sustains this game, if only to shut down at least some of the United States output that will inevitably be shuttered simply because it makes no sense to produce oil at a cost greater than its market price. That's good for consumers, but bad for oil explorers and producers. The other point I want to make: While it may cost $65 on average to extract shale oil, the difference in costs from one shale operation to another is crazy. Some are already operating in the red, while others right here in the United States couldn't care less that oil prices have dropped to the mid-$60's. Take a look at the chart of average costs of different types of oil production in the United States. The data was provided by Barclays, Deutsche Bank, Citigroup, and IHS Herold, and presented by the Financial Post here. Oil shale in the U.S. requires as little as $40 to as much as $80 to extract one barrel. While several of the types of sources for oil have similarly cost ranges, given how much of our "new" oil here in the United States comes from shale, this wide disparity in costs means the shale mining industry in the U.S. is hypersensitive to fluctuations in oil prices. More directly, it means some shale oil operations in the United States may not be profitable again for years, while others could remain profitable indefinitely despite wickedly-low oil prices. Now I'm not able to track down the cost structures for every shale oil operation in the U.S., but I will point you to this opinion posted by Reuters in October, which shows the estimated breakeven prices for most of the major shale oil sites in the country. Even the estimates vary widely from any analytical team to the next, but in the aggregate you should be able to get a good feel for actual costs by locale. That said, the viability question doesn't have to just be asked of shale miners. A whole lot of drillers and explorers are on the bubble. While this may be bad for all of them in the short run, for the low-cost drillers, a culling may actual prove to be quite fruitful in the long run. Market Talk Tabled 'Til Next Time We've gone long in today's newsletter, but that's ok. There's actually not a lot to talk about with today's market action. We all knew the rally was getting a little overextended and was due for at least a small drop. Today we got it. The question from here is - and the reason we want to wait before jumping to any conclusion - how are traders going to respond t o this stumble? It may end up being just a much-deserved break in front of another rally. Or, it might be the beginning of the "enough is enough" selloff. It's truly a 50/50 proposition at this point, with no strong clues pointing in either direction. Rather than make something out of nothing, let's do the smart thing and wait for firmer clues. I've got a feeling we'll be seeing them by tomorrow.