The good news: The major averages put in a significant low yesterday and mounted a classic high-volume reversal. As I noted yesterday, the panic in the market was palpable, and such high emotions often mark important turning points. This should lead to at least a few weeks of relative calm and stability for energy stocks, at least relative to what we’ve seen over the past three weeks.

The bad news: The market still has a lot of negative economic and fundamental crosscurrents to work through; I highlighted several of these in yesterday’s issue. Two- or three-week rallies aside, I still expect there to be more volatility and likely more downside for some stocks in the energy patch over the next two to three months. This volatility will ultimately lead to a historic buying opportunity.

I’ve created a special report on using options to hedge risks, which is posted on the Web site under the “Special Reports” tab. I’ve received numerous questions on the use of put options to hedge downside risk and market volatility; this report should help to answer any queries and prepare us for the next phase of volatility. If not, I’m always available via e-mail at energystrategist@kci-com.com.

The extreme, indiscriminate selling of the past few days has hit some of my recommended stop orders. Several of these stops were actually set to lock in profits, but we have some losers as well.

In addition, I recommend taking profits in some of our big winners that are rallying strongly today. Here’s a rundown.

Biofuels field bet recommendations Potash Corp (NYSE: POT), Mosaic (NYSE: MOS) and Monsanto (NYSE: MON) are up 288 percent, 426 percent and 135 percent, respectively, since my initial recommendation in September 2006. These three stocks are also up 38 percent, 86 percent and 36 percent, respectively, since I last highlighted the biofuels field bet in the Sept. 19, 2007, issue of TES, Down on the Farm.

Although the fundamentals remain strong for all three stocks, they are all extended. As I noted in yesterday’s issue, traders have big profits in these picks and may look to sell them to raise cash on any leg lower in the market.

An extraordinarily strong report from fertilizer producer Potash Corp has really ignited the group again in today’s session, giving us a chance to book gains at outstanding prices. All three stocks rate holds, and I recommend selling a third of your position in each stock to lock in triple-digit gains.

Also note that biofuels field bet member PowerShares DB Agriculture Fund (AMEX: DBA) is trading well above my recommended buy target of 34 and just off an all-time high. I highlighted this exchange traded fund in the Jan. 24, 2007, issue of TES, Another Alternative. I also recommend booking a third of your roughly 36 percent profit in PowerShares DB Agriculture Fund.

My recommended stop in Consol Energy (NYSE: CNX) at $57.50 was activated, handing us a gain of roughly 40 percent from my recommendation last spring. I’ve had this stock on hold since late last year and had repeatedly raised my recommended stop.

In the first issue of the new year, I reiterated that new subscribers shouldn’t buy this recommendation and should instead look at MacArthur Coal (Australia: MCC) or Peabody Energy (NYSE: BTU) as alternative coal picks. This remains my view.

Although I still like the fundamental story with Consol, the company reports earnings Friday, raising the near-term risks. If you were stopped out of Consol Energy, stand aside; otherwise, sell out now and take a gain of more than 40 percent.

Valero Energy (NYSE: VLO), the world’s largest independent refining firm, was stopped out of the Wildcatters Portfolio yesterday for a loss of around 17 percent, including dividends paid. Valero’s fall intraday yesterday was a classic example of pure panic in action, because there was no fundamental reason for the move.

In fact, as I explained in the March 21, 2007, issue of TES, Looking Refined, Valero generally benefits from lower oil prices. Refining margins as measured by the crack spread actually expanded sharply yesterday.

Valero also makes sense seasonally right now, because refining margins have a tendency to rise from late January through May. This has been the case in each of the last five years. If you were stopped out of Valero Energy, buy the stock under 60; new subscribers should also consider jumping into this stock because I doubt we’ll see Valero trade near current levels for much longer.

As I noted in a flash alert on Jan. 10, a handful of my recommended master limited partnerships (MLP) were stopped out. (See the Nov. 22, 2006, issue of TES, Leading Income, for an explanation of the MLP group.) When we include dividends paid, most of the MLPs were stopped for decent gains–an average of roughly 8 percent.

The main reason that these MLPs were stopped out is due to their light trading volume patterns; it takes only very mild selling pressure to push the MLPs lower. Unfortunately, volatility has increased immensely so far this year—both up and down—because of the extreme selling in the broader market.

As a result, I’m eliminating stop recommendations on the MLPs. The MLPs are long-term holdings designed to generate income over long periods of time, not for short-term gains. I believe that any stop that I publish in the newsletter is likely to get hit because of nothing more than a lack of liquidity during episodes of selling panic.

Finally, note that both CGG Veritas (NYSE: CGV) and Chart Industries (NSDQ: GTLS) were stopped out of the portfolio for losses of 8 percent and 23 percent, respectively.

CGG Veritas is involved in the offshore seismic business. Schlumberger highlighted the fact that it sees absolutely no slowdown in this business during its conference call last week. I’m, therefore, adding CGG Veritas back to my growth-oriented Wildcatters Portfolio.

And Chart Industries is involved in the liquefied natural gas (LNG) business. (I highlighted the stock at length in the Oct. 24, 2007, issue of TES, Liquid Energy.) LNG projects are large, multi-year deals, and I see absolutely no real risk of delays or cancellations.

However, Chart is a small cap stock, and small caps tend to get hit harder than their larger brethren during market selloffs. I recommend taking the loss in Chart Industries and standing aside for now. I’ll look for an opportunity to jump back in during the next few months as the market stabilizes.