Dow Jones 10909.85 +86.13 10:59 am PST, December 14, 2005  NASDAQ 2268.97 +3.97 For info, visit access.smallcapnetwork.com S & P 500 1275.06 +7.63 Change your subscription status here Russell 2000 691.00 +1.97 VOLUME 05: ISSUE 93  Feature: Slick Oil Trading. Forget the Long-Term. On November 12th, as everyone was calling for an oil rally, we noted that oil was more likely to drop to $56.50 prior to any renewed price rise. A few days later the price dropped a bit past our projected level and bingo, the rally resumed. Of course as oil bottomed, the bears were still trying to talk it lower as the price once again rose to north of $60. We also noted that at $56, energy stocks would look attractive again both technically and due to the fact "even though the weather has been warm so far, we are likely one cold snap away from a significant rally". Again, both came to pass. In December 1979, the oil price was around $40 a barrel in nominal terms, which puts it at just under $100 in terms of 2005 dollars. So we've been here before. Within four years of 1980, the nominal price had fallen in half. Interesting, no? And oil prices were touted to keep rising unabated then, too Now that oil has rallied, the bulls are once again emboldened. What do we think now? And where's the trade? At around $61 a barrel the weekly chart is up against a couple of short-term barriers. We see a nice opportunity coming to the long side as oil pulls back; evidenced by both a 3/8 retracement of the September to November sell-off and the head and shoulders pattern of the chart. As the broad market continues its year-end rally, we'll likely see some profit taking in oil.  We believe that weakness will make the XLE ETF, which we note below, a nifty short-term trade (and long-term) for aggressive investors. Interesting to note that Goldman has renewed its call for $100-plus oil over the next few years. The muted action of the oil price shows that there is some skepticism to this projection, but it serves to keep current oil prices somewhat buoyant. The Goldman call alone appears to have spurted oil back up over $60. And remember, current crude prices are more due to lack of refining capacity than lack of supply. And the recurrent theme of massive demand from India, China et al continues to add to the ' conventional wisdom'.  The Department of Energy projects that China's oil demand--currently around 7 million barrels per day will rise to 14 million barrels per day by 2025. Since these numbers --and others--are widely known and published and apparently alarming, I have to wonder why the crude price isn't higher? There are surprisingly few ways to get decent oil market exposure. One good proxy--as mentioned above--is the Energy Select SPDR (AMEX:XLE), an ETF with 10 senior oil companies as its constituents. The year-to-date return has been north of 35 percent. Currently $52.50, we would be buyers of this ETF around $50. Following this weakness, we see a short-term profit target of $55--likely within 45 days--and $66 over the next 2-6 months. We don't see anything that will drastically change the XLE's direction, but buying on any short-term weakness will likely prove prescient. A punch though the 52-week high of around $55 would obviously be technically compelling and evidence a new upleg. The XLE is also optionable and to play the current energy season, should the ETF price weaken, one may want to look at the 2006 March 50 calls. At the moment, they seem pricey at $4.20 a contract, as the bias for oil prices at the moment favors the bulls. Should we see weakness in oil and the XLE, those options, at lower prices, may make sense for those more aggressive traders. Interesting to note that the comparable 2006 March 54 puts are $3 a contract, which says to me that the oil bulls are still in charge. Inflated option prices tend to reflect the directional bias in the particular underlying security. Once that reverses, the calls will likely cheapen and make a decent entry point. The March 2006 XLE options are here: http://finance.yahoo.com/q/op?s=XLE&m=2006-03. Scroll across the top of that page for longer or shorter expiry dates. The XLE is one of those vehicles that investors, especially those interested in oil, should become very familiar. Over the next few years, oil price volatility will deliver a plethora of trading opportunities. Everyone thinks they know what's going to happen with oil; asian demand, lack of refining capacity, the US dollar--yadda yadda--all serve to add fuel to the bullish fire. Is oil going higher? Likely yes. Will it be tomorrow, next week or next month? Likely no. All the facts and projections are out there and even exogenous events such as Katrina couldn't rocket the price. I just find it passing strange that with all the 'facts' out there oil hasn't scooted much higher and stayed there. But then 'everyone' is usually wrong-- especially in the short term. What oil will be is volatile. And the profitable trades will be to play the swings. Get to know the XLE.   We Value Your Feedback Got comments, questions or suggestions? Send 'em on over: Editor@smallcapnetwork.com If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 4653 Carmel Mtn Rd Suite 308 #402  San Diego, CA 92130 Subscribe Information is power and timely information is profitable. Become informed and profit from SmallCapDigest Profiles and Trading Alerts by becoming a Preferred Member today. There is no cost associated with your email subscription. Add your email address below and make sure to check your email inbox and confirm your opt-in request to start receiving the SmallCapDigest Email Newsletter on a regular basis. To ensure newsletter delivery, you can add any additional email addresses you may have to the SmallCapDigest Member List. Receiving the SmallCapDigest Newsletter in multiple locations is the best way of making sure you don't miss the next investing or trading opportunity! For web based email addresses, the SmallCapDigest recommends @yahoo.com or @aol.com for timely and reliable email newsletter delivery. Subscribe Here Note: Your email address will be kept strictly confidential, and will not be shared with any other entity for any purpose at any time. If you no longer wish to receive the SmallCapDigest, simply follow the instructions located at the bottom of every SmallCapDigest Newsletter Edition. Unsubscribe Here D I S C L A I M E R: The SmallCap Digest is an independent electronic publication committed to providing our readers with factual information on selected  publicly traded companies. SmallCap Digest is not a licensed investment professional or broker-dealer. All companies are chosen on the basis of certain financial analysis and other pertinent criteria with a view toward  maximizing the upside potential for investors while minimizing the downside risk, whenever possible.  Moreover, as detailed below, this publication accepts compensation from third party consultants and/or companies which it features for the publication and circulation of the SmallCap Digest or representation on SmallCapNetwork.net.  Likewise, this newsletter is owned by TGR Group, LLC.  To the degrees enumerated herein,  this newsletter should not be regarded as an independent publication. Visit Here to view our compensation on every company we have ever covered, or visit the following web address:  http://access.smallcapnetwork.com/compensation_disclosure.html for our full compensation disclosure and http://access.smallcapnetwork.com/short_term_alerts.html for Trading Alerts compensation and disclosure. TGR Group LLC has not been compensated for this report. All statements and expressions are the sole  opinions of the editors and are subject to change without notice. A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities  mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein. From time to time TGR Group LLC sells shares in the open market it receives as compensation for coverage of client companies. Since the shares are received as compensation for services as previously disclosed, and not for investment purposes, the editors do not view the sale of the shares as contradictory to any advice delivered in the content. This should be viewed as a conflict of interest by shareholders or prospective shareholders of the client companies. The editor, members of the editor's family, and/or entities with  which the editor is affiliated aside from TGR Group LLC itself, are forbidden by company policy to own, buy, sell or otherwise trade stock for their own benefit in the companies who appear in the publication unless specifically disclosed in the newsletter. The profiles, critiques, and other editorial content of the SmallCap Digest and SmallCapNetwork.net may contain statements that appear forward as it relates to the expected capabilities of the companies mentioned herein. THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN  SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. THE INFORMATION FOUND IN THIS PROFILE IS PROTECTED BY THE COPYRIGHT LAWS OF THE UNITED STATES AND MAY NOT BE COPIED, OR REPRODUCED IN ANY WAY WITHOUT THE EXPRESSED, WRITTEN  CONSENT OF THE EDITORS OF SMALLCAPNETWORK.NET. We encourage our readers to invest carefully and read the investor information available at the web sites of  the Securities and Exchange Commission ("SEC") at http://www.sec.gov and/or the National Association of Securities Dealers ("NASD") at http://www.nasd.com. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at  http://www.sec.gov/consumer/cyberfr.htm . Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.