Get Ready to Feel ‘Energetic’

  • SumoMe

It’s cold outside. That’s a good thing.  Well, if your priority is making money in energy stocks it is anyway.

(IMPORTANT NOTE on 1/16/17: A corrected Figure 2 appears in this article.  The results in  Figure 1 and Figure 3 in the original article were correct, however, the year-to-year results in Figure 2 in the original article were taken from the wrong Column of data and actually represent the returns that would have occurred if an investor had held FSESX from the end of November through the end of May every year  since 1986.  That original Figure 2 is also included below beneath the NEW corrected Figure 2).

First off, I should note that in this recent article I wrote about a potential trade to take advantage if crude oil sells off prior to mid February 2017.  This trade was labeled as purely “speculative” and involved a low dollar risk option trade.  An update on that position appears at the end of this article.

(See also Why You Should Be Rooting for a Bullish January)

Energy and Late Winter/Early Spring

For our test we will simply look at the performance of Fidelity Select Energy Services (ticker FSESX) during the months of February, March and April since the fund’s inception of trading in 1986.

Figure 1 displays the growth of an initial $1,000 investment in FSESX only during these 3 months each year.

1Figure 1 – Growth of $1,000 invested in ticker FSESX during Feb/Mar/April only; 1986-2016

Figure 2 displays the annual percentage gain/loss results generated by simply holding FSESX for the same 3 months every year.

(IMPORTANT NOTE on 1/16/17: A corrected Figure 2 appears in this article.  The results in  Figure 1 and Figure 3 in the original article were correct, however, the year-to-year results in Figure 2 in the original article were taken from the wrong Column of data and actually represent the returns that would have occurred if an investor had held FSESX from the end of November through the end of May every year  since 1986.  That original Figure 2 is also included below beneath the NEW corrected Figure 2).

NEW Corrected Figure 2 (as of 1/16/17) forFeb/Mar/Apr

Year % +(-)
1986 (6.2)
1987 14.1
1988 17.5
1989 12.7
1990 8.6
1991 7.6
1992 2.6
1993 25.0
1994 (3.2)
1995 19.5
1996 20.5
1997 (5.7)
1998 24.8
1999 55.3
2000 35.8
2001 7.2
2002 25.6
2003 3.2
2004 2.5
2005 1.5
2006 0.2
2007 17.9
2008 25.2
2009 19.5
2010 11.6
2011 9.5
2012 (1.3)
2013 (0.1)
2014 14.5
2015 16.6
2016 20.3

Figure 2  – Total Return % +(-) for FSESX during Feb/ Mar/Apr since 1986

For the record (Corrected Figure 2 for Feb/Mar/Apr):

-# of years that showed a gain = 26 (84% of the time)

-# of years that showed a loss = 5 (16% of the time)

-Average UP year = +13.5%

-Average DOWN year= -3.3%

NOTE: Below is Figure 2 from the original  article which were taken from the wrong Column of data.  The results in the Figure 2 below represent the gain/loss from holding FSESX from the end of November to the end of May every year since 1986.

Year %+(-)
1986 (7.2)
1987 47.2
1988 19.0
1989 37.2
1990 14.6
1991 2.0
1992 4.8
1993 35.4
1994 (2.6)
1995 38.1
1996 23.4
1997 14.4
1998 1.6
1999 60.6
2000 90.4
2001 16.9
2002 21.1
2003 28.1
2004 3.7
2005 15.0
2006 10.7
2007 33.0
2008 (1.0)
2009 47.8
2010 (4.3)
2011 5.1
2012 (6.4)
2013 14.3
2014 3.5
2015 (10.3)
2016 13.7

Figure 2 – Annual% +(-) from holding ticker FSESX during Feb/Mar/April only; 1986-2016

For the record:

-# of years that showed a gain = 25 (81%of the time)

-# of years that showed a loss = 6 (19% of the time)

-Average UP year = +24.1%

-Average DOWN year= -5.3%

To put the power of this seasonal trend into perspective, Figure 3 displays the results of the following test:

*Buying and holding FSESX during Feb. Mar and Apr every year and sticking the money in a mattress the rest of the year (Strategy – blue line)

*Versus buying and holding the S&P 500 Index (SPX – red line)

3Figure 3 – FSESX Seasonal 3-months a year strategy versus buy/hold using SPX

Summary

The good news is that this has shown to be an extremely powerful (and profitable) seasonal trend.  The bad news is that none of this guarantees that energy stocks will generate a gain during this 3-month period in 2017.

Still, it’s something to think about.

Update on USO Option Trade

The jury is still out on the trade I wrote about here. In Figure 4 below you can see that ticker USO and the option position itself are roughly unchanged from the time of entry. 4Figure 4 – Long USO Feb 13 puts (Courtesy www.OptionsAnalysis.com)

The bottom line: if USO rallies between now and mid-February, this trade will lose money.  If USO declines from current levels a profit is possible.

Jay Kaeppel

3 thoughts on “Get Ready to Feel ‘Energetic’

  1. Is figure 2 right? The FSESX prices from yahoo finance and googlefinance show different results. For example, 2016 shows a 20% return for Feb-Apr using FSESX vs 13.7% in figure 2.

    1. Todd, Excellent catch, thank you. This Figure will be updated soon. In the meantime I added a Note regarding this to the article (IMPORTANT NOTE on 1/16/17: A correction to Figure 2 is forthcoming. The results in Figure 1 and Figure 3 are correct, however, the year-to-year results in Figure 2 (and the “For the Record” numbers below that Figure were taken from the wrong Column of data and actually represent the returns that would have occurred if an investor had held FSESX from the end of November through the end of May every year since 1986.). As soon as I find out who is in charge of quality control here at JayOnTheMarkets.com, heads are gonna ro….., er, never mind. But thanks again for catching this. In the meantime,”For the Record” the correct Feb/Mar/Apr figures are 26 times up, 5 down, Ave.UP= +13.5%, Ave Down = -3.3%. Jay

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