Crude oil and pretty much the entire energy sector has been crushed in recent months. This type of action sometimes causes investors to wonder if a buying opportunity may be forming.
The answer may well be, “Yes, but not just yet.”
Seasonality and Energy
Historically the energy sector shows strength during the February into May period. This is especially true if the November through January period is negative. Let’s take a closer look.
The Test
If Fidelity Select Energy (ticker FSENX) shows a loss during November through January then we will buy and hold FSENX from the end of January through the end of May. The cumulative growth of $1,000 appears in Figure 1 and the yearly results in Figure 2.
Figure 1 – Growth of $1,000 invested in FSENX ONLY during Feb-May ONLY IF Nov-Jan shows a loss
Figure 2 – % + (-) from holding FSENX during Feb-May ONLY IF Nov-Jan shows a loss
Figure 3 displays ticker XLE (an energy ETF that tracks loosely with FSENX). As you can see, at the moment the Nov-Jan return is down roughly -15%.
Figure 3 – Ticker XLE (Courtesy AIQ TradingExpert)
All of this suggests remaining patient and not trying to pick a bottom in the fickle energy sector. If, however, the energy sector shows a 3-month loss at the end of January, history suggests a buying opportunity may then be at end.
Summary
Paraphrasing here – “Patience, ah, people, patience”.
Jay Kaeppel
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
