As readers know, I like to post some (not all, of course) of our strategic moves from the equity platform we manage at ValueTrend. I am asked at times if this is not “giving it away for free”, but I don’t look at it that way. As I’ve noted in the past, by showing people some (again – not all) of our trading decisions – you can get a taste for our style and if our decisions are good. There is no better advertising for an investment business, in my opinion, to better disclosure. Too many people in our business hide their performance and their strategies from the public. Or they only show you their good trades, after the fact. We, on the other hand, don’t mind displaying our wares on a live basis without post-trade filtration. With this in mind, let’s talk about our latest strategic move at ValueTrend.
We’ve been buying into oil and energy stocks lately. Our focus has been more on the oil services and junior oil stocks based on their chart patterns and their potential leverage (beta) against a positive move for oil. Seasonality is turning positive for the sector, and should be good out to the spring.
Above is the longer view (weekly chart) for WTI. You’ll note that oil has cracked its neckline, although since doing so remains stuck below $55. A break through $55 will be bullish for WTI and likely move it into the low $60’s. While by itself not a bad trade, should that happen, it is my opinion that the juniors and the service companies will lever that move with a greater profit potential.
I’ve posted a weekly chart for the BMO Jr. oil ETF below (ZJO-T). We just bought a position in this ETF. I didn’t post a full study (moneyflow etc) give its relatively low volume – but it is a good representative of the smaller energy stocks out there. We tore the index apart recently and liked the top 10 holdings (with the exception of Parsley Energy, PE-N). Thus, for diversification, we bought the ETF. In the oil services sector we bought two individual names (sorry, you have to be a client to know which ones…).
We view this as a seasonal trade at this juncture. Oil tends to be a good trade between February and May. Our commitment to holding oil much beyond the spring is low. Our price objective for WTI is to reach around $62 or so. This price objective is also fairly inflexible. We plan on selling – ideally if/as/when the price objective and/or spring/early summer comes. A break much below $50 would inspire a sellout of the sector.
BTW–Brooke Thackray has a good summary of the seasonal oil trade on page 9 of his newest newsletter, here.
So there you have it. Our buy point, our upside objective, and our sell/loss strategy. Hopefully this will inspire some of you to think in terms of your trading strategies as you review this, or other opportunities.