• Tweet
• Email
• SumoMe

• Tweet
• Email

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.

Figure 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)

Figure 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. Figure 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