As we said yesterday, oil on the mend is the key proxy right now for global economic stability.  With that, after closing above $40 yesterday, oil continued its surge today, up 4%.  And global stocks had a good day, up 1% in the U.S.

Remember, we get key inflation data over the next couple of days, namely from Europe and the U.S.  A hotter inflation number in the U.S. would further support the signal that oil is giving to markets (a positive one).

Today we want to look at a few of very key charts.  This first chart is an update on the crude oil/stock market relationship.  We’ve looked at this a few times over the past few months.  The last time we revisited this chart, oil and stocks had started to diverge from stocks with its recent move back into the mid 30s.

Here’s the chart we looked at on April 1.

Source: Billionaire’s Portfolio, Reuters

About this above chart, we said….

“The question: Is this an opportunity to buy oil or sell stocks?

Given the significance of the oil bust threat to the global economy, we would argue the former.”

Indeed, that was the trade.  Here’s a look at the relationship since oil’s aggressive bounce back above $40.

Source: Billionaire’s Portfolio, Reuters

So oil is sustaining above $40 for the first time since November.  We know three of the top oil traders in the world are betting on $70-$80 oil by next year.  We know central banks have stepped in (in coordination) since the low in oil on February 11 and the result has been a 50%+ bounce in oil.  Now, technically, oil looks like a technical breakout is here.

Source: Billionaire’s Portfolio, Reuters

In the above chart, you can see oil breaking above the high of March 22 (which was 41.90).  In fact, we get a close above that level – technically bullish.  And we also now have a technically bullish pattern (an impulsive C-wave of an Elliott Wave structure) that projects a move to $51.50, which happens to be right about where this big trendline comes in.

Now, with the inflation data in the pipeline for the week, we’ve talked about the negative signal that ultra-weak yields are sending to markets.  And German yields have been leading the way on that front.  But guess what?  German yields reversed sharply off of the lows yesterday, and continued higher today, putting in a long term bullish reversal signal (an outside day – technical jargon, but can be very predictive of tops and bottoms). And that coincides with the U.S. 10-year yield, which is on the verge of breaking the recent downtrend and projecting a move back to 2.15%.  We’ll take a look at these very important charts for financial markets and for the global economic outlook tomorrow.

These key markets are signaling what could be the beginning of a big shift in sentiment and the beginning of positive surprises in markets and economies, which tends to happen when expectations have been ratcheted down so dramatically, as we discussed yesterday with the sour earnings outlook and pessimistic economic backdrop.

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Oil has surged to open the week. If you’ve been reading our daily pieces over the past few weeks, you’ll know how important oil is for global markets at this stage. With that, strong oil today has translated into higher stocks, higher broad commodities, a slight bump higher in interest rates and better investor sentiment in general.

It was just fourteen days ago that Chesapeake Energy, one of the largest producers of oil and natural gas was rumored to be choosing the path of bankruptcy. That rumor was immediately denied by the company. And soon thereafter, the reality set in for markets that a scenario like that would conjure up post-Lehman like outcomes. Oil has since put in a bottom and bounced more than 25%. Chesapeake has now bounced 46% from the lows just the last six trading days.

It’s at extremes in markets where the biggest and best investors have historically made their money – running into risk, when everyone else is running away.

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With that, today we want to take a look at a few stocks with the biggest upside, and an important “risk buffer” in what is a high risk sector at the moment (energy). This risk buffer? Each stock has the presence of a big-time billionaire investor.

Self-made billionaire energy trader Boone Pickens has said he expects oil to return to $70 this year. On his $70 prediction, he’s also said that if he misses it will be because oil is “over $70, not under $70.” If Pickens is right about oil prices, each of these stocks below have huge upside:

1) Oasis Petroleum (OAS) – Billionaire hedge fund manager John Paulson owns nearly 4% of this stock. The activist hedge fund SPO Advisory owns 14% and has been buying the stock on almost every dip. When oil was last $70, OAS was trading $25 or 500% higher than current levels.

2) Chesapeake Energy (CHK) – Billionaire investor Carl Icahn owns 11% of CHK and recently added to his position around $13. The last time oil was $70, Chesapeake was $25. That would be more than a 1000% return from its price today.

3) EXCO Resources (XCO) – Billionaire investors Wilbur Ross and Howard Marks own more than 30% of this energy stock. The last time oil was $70, EXCO was $3.30. That would be almost a 330% return from its price today.

4) Consol Energy (CNX) – Billionaire David Einhorn owns 12.9% of this stock. When oil was last $70, Consol traded for $40 or almost 500% higher than current levels.

5) Williams Companies (WMB) – Carl Icahn Protégé, Keith Meister of the activist hedge fund Corvex Management, owns $1.1 billion worth of WMB. The last time oil was $70, WMB traded for $50 – more than 300% higher than its current levels.

As we’ve said, persistently cheap oil (at these prices) has become the new “too big to fail” — it’s a systemic risk. It’s hard to imagine central banks will sit back and watch an OPEC-rigged price war put the global economy back into an ugly downward spiral. And time is the worst enemy to those vulnerable first dominoes (the energy industry and weak oil producing countries).

The best investors like to go where the biggest risks are — that’s where the biggest returns can follow. And they’ve been getting aggressive in energy and commodities.

Without question, energy stocks have been beaten up and left for dead. If indeed Chesapeake is a leading indicator that it’s all backing away from the edge, there will be big money to be made in these stocks.

We already have one of the best performing stocks in the entire stock market for the month of February in our Billionaire’s Portfolio, billionaire-owned Freeport McMoran. Click here and join us!