Blood in the Energy Streets (Part II)

  • SumoMe

In this previous article I highlighted the fact that the news and outlook for the energy sector appeared to be reaching the “Everyone knows” stage – as in everyone knows that there is no chance that energy related assets will be advancing in price anytime soon.  The outlook has become so universally negative for “all things energy” that it is almost impossible to find anyone who is not bearish on energy.  And perhaps a bearish approach is best as forecasts for $20 or even $10 crude oil abound.

(See also Seasonality in Housing Stocks)

Still, just for the record, we are entering the time of year when energy stocks end to perform well.  Granted there are never any guarantees when it comes to seasonal trends and no way to know in advance if it will be different “this time around”. Nevertheless, the old adage states that “opportunity is where you find it.”  Is it possible that gutsy investors and traders may find it in the energy sector?  Let’s take a look.

Fidelity Select Energy Services (Ticker FSESX)

Figure 1 displays the annual seasonal trend for ticker FSESX since 9/30/1988.  Anything jump out at you?1Figure 1 – Annual Seasonal Trend for FSESX

There has been a strong tendency for energy service stocks to perform well during late winter and early spring.  How well? Figure 2 displays the growth of $1,000 invested in ticker FSESX only between the end of January and the close of the first trading day of May every year since 1989.

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Figure 2 – Growth of $1,000 invested in FSESX during “bullish” period

Figure 3 displays the % gain or loss experienced by FSESX during the “bullish” time period each year since 1989.

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Figure 3 – Annual Results for FSESX during “bullish” period

Key things to note – FSESX:

*Showed a gain 23 times (85% of the time)

*The average gain was +17.1%

*The median gain was +14.0%

*The largest gain was +62.2% (1999)

*Showed a loss 4 times (15%)

*The average loss was -2.9%

*The median loss was -2.1%

*The largest loss was -6.9% (1997)

Summary

So are energy service stocks sure to advance in the months ahead?  Not at all.  Still when you combine a sector entering a seasonally bullish period with sentiment regarding that sector that is universally negative – you may the ingredients for a surprisingly favorable move.

Jay Kaeppel

3 thoughts on “Blood in the Energy Streets (Part II)

    1. If you just draw the calendar year then the bullish period get split into two part (end of year, start of year). Though showing the whole contiguous period would make things a little clearer (um, maybe I was wrong about that, eh?…..)

      1. What I meant is that the horizontal title says “Jan Jan Jan Feb Feb…” etc. Is that just your graphing software autofilling the months in? Or is it significant in some other way? I was just wondering if there was a) a bug, or b) I was missing something. Always bet on “b”…

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