opportunity in energy

John Templeton once said “To buy when others are despondently selling, and sell when others are greedily buying requires the greatest fortitude, and reaps the greatest reward” As a Technical Analyst, I have NO interest in catching a falling knife. I do try to spot oversold situations that are finding support near mega-proven floor levels. WTIC crude oil, which many of you know we at ValueTrend sold a substantial weighting early in 2023 at a profit, may be back in the opportunity camp. Today, I’d like to examine oil, and explain why Craig and I have just begun to slowly leg back into some positions in the trade. Read my arguments, and decide for yourself if you agree that opportunity may be coming for the oil trade.

Seasonality

I use seasonality as a guide, not as a trading rule. But oil is one of the sectors that certainly has a more predictable seasonal pattern than many others. Gold, too, BTW is also one for fairly good seasonal reliability.

Here’s the crude oil futures seasonality chart. Note that February is the start of some very serious seasonal influences on oil. Note that December (now) is often a time a bottom insofar as seasonal tendencies go. That’s one factor that’s been in my mind as we start to leg into the sector:

Here’s the producers seasonality chart. Note the dip in December, albeit not after the greater period of underperformance for the underlying commodity. March is the start for the producers to shine:

Crude oil chart

As you’ll note on this chart, which I have presented many times over the past decade or so, there is a defined support level on WTIC crude near $65. Prices have approached that level lately. Momentum RSI & stochastics are near the buy zone, albeit not hooking up yet. Downside from here, insofar is risk/reward, seems limited to that support line. A bounce from near $65 implies a target in the $85 area. Not bad.

Canadian energy stocks:

The Canadian producer ETF (XEG-T) seems trapped between $13- $17. Its about halfway through that zone, currently trying to find support near its 40 week SMA. There’s room for the index to move down a bit, but oil (above) will support it as it toys with its mega support levels.

 

Conclusion

No hurry to pile into energy right now, but the setup is there for a probable positive move into the spring once the New Year gets under way. If you do decide to enter the trade, consider my strategy of legging into the trade in steps, rather than aggressively. See my Online Trading Course (on sale this month).

14 Comments

  • Thanks for the post/video. I’ve been adding oily names slowly as well this past week and am watching for that indicator hookup. I like a good swing sale 😉

    Reply
    • Yes, swing trades are my favorites–as I note in much of my work. I love that you can identify your buy point, stop loss point, and sell target so readily. Trade by numbers!

      Reply
  • I don’t disagree with oil, pipelines, etc. As Benjamin Franklin wrote, pipelines are heavily regulated and audited, so the risk of a scam or insider trading or pump and dump are minimal. Names such as Enbridge, TransCanada, Keyera, and many other bigger or smaller names.

    But we need to start legging in companies having minerals or technology that manufacture electric vehicles.

    Petrol run cats and trucks are being replaced by the same running on electric batteries.

    Reply
  • Did the gas Porsche sell well, to snag a Porsche Taycan electrical model? E vehicles is the future…can’t live live past. By the way, copper makes a better 220 volt connection than aluminum for the charging, as you know.

    Reply
    • I am a lifetime true driving enthusiast. Yes, commuting is one thing, but the Porsche I drive for passion, not posing or impressing anyone. I am an involved driver who avoids nanny’s – I insist on full engagement. That means: Manual tranny and heel to toe shifting (a lost art), screaming redline with a soundtrack that inspires via a naturally aspirated engine engineered for track racing. Light weight to carry the g-forces on a track (1.24g!). Aerodynamics designed to keep that nose planted without lift. Raw passion, pure involvement and engagement. And the sound. Oh, the sound! My current Porsche has no turbo chargers, and redlines at 9000. Sound deadening is substantially less than a standard sports car–every bit of gravel on the road pings in the wheel well. Carbon bucket seats – its an event getting out of the car without falling on the pavement! So hardcore it gives me goosebumps! The car is 3100 lbs with liquids! Its as raw and purposeful and passionate as driving gets.
      EV’s have all the passion and involvement of dating an overweight plastic mannequin.
      So no, the day I replace my pure blooded driving experience…I hope to die.

      Reply
      • I drove a 1974 Porsche 911 Carrera 2.7 MFI for a while in the 70’s and completely get your passion!

        My girlfriend at the time affectionately called it ‘real balls’ 😀

        Reply
        • Those old 911’s were the real deal! Love the smell of the petrol – and that guttural engine sound. Probably should have kept it–I think they are worth a buck or two now!!

          Reply
  • Excellent insight.

    Nor surprisingly, finding apostates among high performance gasoline engine drivers are rare.

    Pundits in the media mention that hybrid cars, not pure electrical vehicles, are the flavor of the moment.

    Who has taken apart a hybrid vehicle, to list its components, to and parts manufacturers, who are and will increasingly be filling their pockets, to later look at their financials? To nibble on the stocks.

    Reply
  • Thank you Keith,
    I agree with your analysis on oil. I’m curious to know your stance on Natural Gas ? Yes the trend is still going down, but on many matrix, I find that it seems oversold. There are even short term signs (daily) of bottom… maybe ready for a swing up. However, the seasonality is ugly for Nat Gas in december and nothing good until early april. What do you think of nat gas ?

    Reply
    • Actually, Nat gas is close enough to the bottom of its uber-long support level of about $2-=–we’re talking way back to 2009!!!
      So, IMO, sooner or later it will pop. It may revisit $2 (about $2.50 now)–but I’d bet a year from now it will be higher! Like I have noted in the past, swing patterns are great–you know your stop, your buy point, your target. Paint/invest by numbers!

      Reply
  • I enjoy petrol engine vehicles as much as the next guy or gal, but …and I hope everyone is sitting on a chair as they read this, but the government has announced they will be passing a law requiring ingredients all new vehicles to be zero emissions by 2025, approximately 10 years. That means cars with batteries not LNG or nuclear or wind powered, if that exists. This means demand for gas pump product will plummet, and the need for copper, lithium, nickel will skyrocket.

    With that in mind, as in London, England, and many cities, vehicles not meeting low emissions will be prohibited from driving downtown Toronto, Montreal, Vancouver most likely.

    The demand for surveillance and CCTV will also register a huge demand as cameras and hardware and A.I. will record the perpetrators driving in those areas downtown with gas guzzlers. Could be Honda, GM, Ford, Dodge or Porsche, Lexus, BMW, Mercedes Benz. etc. A gasoline engine big or small is not electrical.

    Warren Buffet may be wiped out in Canada, his shirt and clean underwear business, at least, will do well as Canadians soil themselves reading these new stringent anti -petrol policies.

    Time to nibble at clean energy vehicle parts manufacturers, including minerals and processors.

    Things are getting desperate in Chile as they have been seen to rip up copper mining company contracts, wanting to cash in on the coming e vehicle bonanza.

    Reply

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