Ignore The Headlines In This Oil Price Rally

I spend a lot of time these days studying oil. From a trading perspective it is one of the best markets around, or at least for me. Futures provide highly leveraged, readily available, and relatively inexpensive access to a market that responds to the …

Maintaining A Long Bias On Oil

The timing of these pieces, coming at the end of the week, is sometimes a frustration, but often a blessing. There are times when I want to give you a “hot take” on something in the news. After all, as somebody who made a living in a dealing room for a couple of decades, reacting is kind of what I do. However, my inability to react immediately to this week’s big news, Trump’s decision on the Iran deal, was probably a good thing. On the surface, the market implications of the decision were obvious. Even those who believe…

Two Lessons From Earnings Season

When considered on a year on year basis, this has been a remarkable earnings season so far for the energy sector, with a market leading 89.1 percent EPS growth rate. Investors who saw that coming, however, have not necessarily made boatloads of money, as many stocks in the sector have not responded positively to their own reports, which of course raises the question why. As always there is not one simple answer. There are a number of factors that have caused some stocks to react to earnings disappointingly, and as we sort through them it seems…

Time To Reverse A Very Successful Trade

Long-term regular readers will be aware that I have been consistently bullish on First Solar (FSLR) for a long time. The stock is up just over 155 percent in the last year, so that has been proven a good call, but, as the old saying goes, all good things must come to an end. It is time to take a profit on the stock, and the more adventurous among you may even want to consider reversing the position and selling it short. (Click to enlarge) There are multiple reasons to believe that the great run the stock has enjoyed is coming to an end, but the…

Trading Trump’s OPEC Tweet

Oh no, here we go! This morning, Donald Trump, who seems to be constantly looking for a controversy to deflect from the gathering clouds of the Mueller investigation, decided to tweet out his opinions on the price of oil. Up to this point, the energy markets have largely been spared the need to do what I refer to as TTT (Trading Trump’s Tweets), so to understand the implications of this we need to look at how stock traders have learned to handle the occasional words of wisdom our leader shares via Twitter. What traders in other markets have…

How Significant Is WTI’s Breakout?

Oil, after looking rangebound for a while, albeit at the highest levels since 2014, looks like it has broken out. When WTI futures challenged February’s high of $66.66 a few weeks ago, we reached $66.55 before retreating rapidly, a pattern that reinforced the resistance level and suggested that we would head lower again. A couple of days ago, however, we broke through and have been trading above that point for three days now. That confirms that WTI has broken out of its range, but the lack of follow through since suggests that this may not…

Once Stock To ‘SNAP’ Up Now

If we listen, we can learn a lot from our children. This morning, as I was driving my teenage son and daughter to school, a story came on the radio about the Facebook/Cambridge Analytica problem. It prompted a discussion between them, the conclusion of which can best be described as “So what?”. My first thought was that that was the result of childish ignorance but the more I thought about it, the more I realized that it actually came from a generational difference in experience and philosophy that is significant for investors. It was…

3 Reasons Buying To Buy Untrendy MLPs

Master Limited Partnerships (MLPs) are about as fashionable as hot pants. Like the skimpy shorts of the seventies they retained a hard core of fans and have even seen various moments when it looked like they were coming back, but mainstream opinion has remained negative. Now, however, there are three factors that suggest that at the very least the worst could be over, and which may actually result in MLPs seeing a resurgence in popularity. The argument against MLPs is obvious and well known. The big drop in oil a few years ago and subsequent cost-cutting…

A Classic Dividend Play That Comes At A Discount

Maybe it is just the rose-colored glasses with which we look backwards, but it seems to me that there was a time when investing in energy stocks was a lot simpler. The reason was simple: mature companies in the sector generally paid high dividends, and over time a payout in the high single digits smoothes a lot of bumps. High dividends either makes a positive return extremely likely or provide a good source of income to spend or invest elsewhere. Those days, however, are gone. Ten years of ultra-low interest rates in response to the recession and…

Is Tesla About to Collapse?

As I have pointed out here in the past, being negative on Tesla (TSLA) is usually not a good idea. The problems that the company faces are fairly obvious, but Elon Musk seems to have an almost magical ability to make them irrelevant. Nearly thirty percent of Tesla shares are currently held short, and when the news came this week that the company was once again looking like missing production targets those shorts must have been licking their lips, expecting a massive drop in the stock. As usual to this point they were disappointed, but the news…

Trump’s Trade Wars Could Spark A Massive Drop In Oil

Today, I am breaking with two of my rules in writing these pieces. I generally try to steer clear of politics and to avoid being alarmist or overly sensational. What has forced me to ignore both rules is the announcement on Thursday by Donald Trump that he is going to enact tariffs on steel and aluminum next week. Politicians in general have less influence on economies than they think, but they can cause disruption, and particularly when they make economic decisions for political reasons. That is what this is, and it has the potential to cause…

An Energy Stock Set To Rebound

Regular readers of my ramblings will be aware that I am usually neither a fan nor a follower of conventional wisdom. When an idea is repeated frequently, and seemingly by everybody, trading in that direction is foolish, especially if that narrative has held sway for a while. So when every pundit in print and on TV started saying that energy stocks were the place to be when the stock market fell so spectacularly a couple of weeks ago, I was skeptical. Now that stocks in general have rebounded but the energy sector has got left behind, however, there…

A Cushioned Contrarian Trade In Energy

Now, according to the prevailing consensus, is a bad time to be considering any stock in a utility. Interest rates are climbing, and as most utilities have high debt loads and relatively high dividends that leaves them vulnerable to a double whammy. Their debt servicing costs look set to rise and their relative value as yield bearing securities fall as interest on Treasuries and other fixed income products rise. Still, despite that obvious logic, I am bullish right now on a small cap utility, Spark Energy (SPKE). As I said, the consensus view is…

Explaining The Big Drop In Oil Prices

As I’m sure you are aware, over the last week and a half, U.S. stocks have taken a massive hit. The reason we are told, is that the widely followed and frequently indicative forex and Treasury markets are both suggesting that inflation fears are growing. It is understandable if all the potential ramifications of that elude you as inflation was last a real problem back when Reagan was President, but most know that it involves higher prices of goods and commodities. So, logically speaking, inflation fears should be pushing oil higher, right?…

Trading The Volatile Natural Gas Market

Investors generally fear volatility. They are taught to do so by financial advisors who use the word as a pseudonym for market declines and the associated losses, and who see it as a measure of risk. They will even often show you a scatter chart with volatility on one axis and returns on the other, as if the two things are mutually exclusive, and tell you that you want to be in the upper left corner, where returns are high and risk is low. Traders, on the other hand, understand that that is BS. First off, return on an investment is a reward for…

A Trading Strategy For Earnings Season

It’s that time of the quarter again! Earnings season is well underway, and we will see fourth quarter 2017 results from many energy companies next week. Friday will bring a few “big oil” results, with reports from Exxon Mobil (XOM) and Chevron (CVX) as well as Phillips 66 (PSX), so now is a good time to take a look at what to expect, and to look at the best strategy for traders going into the releases. The consensus forecasts for XOM, CVX and PSX are for earnings per share of $1.03, $1.06, and $0.87 respectively. Not surprisingly…

Did Schlumberger Just Become A Buy?

This morning, in the first major energy sector release of this earnings season, oilfield services giant Schlumberger (SLB) reported fourth quarter 2017 results. Each quarter, their earnings are regarded as a bellwether for the sector, so deserve attention, but this quarter they also resulted in an opportunity in SLB itself. The company issued a good report with in pretty much every way. They beat analysts’ expectations on both revenue and earnings, and while they don’t issue a formal guidance, they did indicate that their market conditions…

Playing The Expected Theme For 2018

There is, it seems, one theme that look likely to dominate energy investing in 2018, increased output. On some subjects it seems that the current White House has a problem iterating a consistent and coherent policy vision, but that is not the case on energy, where every word we hear talks about “unleashing America’s energy potential” or some other, similar cliché. And, so far, their actions have backed up their words. Vast areas of the country have been opened up for exploration and drilling, and environmental protections…

Two Top Picks In Energy This Year

The New Year is a time for a fresh start, which will be welcomed by energy investors. The sector did better last year than it has in the recent past, but still underperformed the broader market. The problem is that U.S. oil production continues to increase, threatening the recovery in prices that we saw in the second half of last year. We have already heard from the Trump administration that they will be conducting a massive lease sale on both the Pacific and Atlantic coasts this year which is good for the long-term prospects of oil companies,…

WTI In 2018

As much as I love Christmas and year end celebrations, this is not a great time of year for me for one reason. The expectation is that I will write a piece like this, predicting what will happen over the next twelve months. Predicting is what I do, of course, so you would think it would not be a problem, but these year end pieces are different. Usually, I get to state the time frame of a move implied by my research. Some things have an immediate effect that will show itself in a couple of days, while some predictions may be designed to play out…

The Best Long-Term Buy In Lithium

As a rule, I don’t like well-publicized, obvious trades, and for one good reason. By the time you get to them, the value has already gone, and the all-important risk/reward ratio is usually skewed against you. The last thing any trader wants to be is the last one in on a move. Occasionally, though, there is an opportunity with a well-known, clear rationale that still makes sense. The mining company Albermarle (ALB) is a case in point. (Click to enlarge) The reason that buying ALB is obvious is what ties it in with energy, they are the world’s…

Is Oil About To Collapse?

When writing about markets, here and elsewhere, I usually try to avoid the temptation to write sensational things. Words like “collapse” and “crash”, or “surge” and “explode” attract clicks, which in turn often translates to cash for a writer, but major events like that are rare. That is all fine and logical, but…WTI really does look like it is about to collapse. Let’s be clear, I am not necessarily talking about a return to the sub-$30 of the beginning of 2016 here, but a return to the…

Two Tactics For Trading “Off the Chart”

Oil’s sustained rise over the last six months has created an interesting dilemma for many traders. It has taken WTI, for example, to levels not seen since April of 2015, so for those looking at a 1-year chart prices are quite literally “off the charts”. Most traders, myself included, use recent levels of support and resistance to plot both entry and exit points for trades, at least to some extent, so off the chart pricing is problematic. You could go back to that 2015 action, but time decreases the relevance of chart levels, so…

A Trade that Works On Two Fronts

As I have said many times in the past in these pages there are two basic types of analysis for anything traded, fundamental and technical, and the best trades are when they both suggest the same thing. Usually, because I generally adopt a “top-down” style, the fundamental case comes first, and is then confirmed by the technical. Sometimes, however, I am struck by a chart first and the more I think about it, the more the fundamental case supports the trade. That was the case this week when I looked at the environmental services company,…

Tesla’ E-Truck Is A Big Thing For Energy Markets

Yesterday, Tesla (TSLA) unveiled its new truck, and the event was vintage Musk. As if the world’s first fully electric semi wasn’t enough, he used the occasion to unveil a new roadster that was driven from the trailer of the demo. That kind of showmanship and marketing has been his genius in the past. It has helped to cement his reputation as an innovative, disruptive thinker and it keeps the Tesla fans in awe. The haters, of course, see it all as a distraction from the production issues and increasing losses at the company, but you…

Saudi News Shifts The Long-Term Prospects for Oil

I have mentioned a few times here that I believe that one of the keys to understanding short-term moves in financial markets is to understand that traders overreact. When your working life is focused on one commodity or currency pair, or maybe a handful of stocks, any news relevant to what you trade takes on exaggerated importance and overreacting is only natural. That means that for those outside dealing rooms, fading an initial big move and profiting from the retracement is usually a good strategy. I still stand by that, but sometimes news comes…

The Case for Buying Into 2 Dying Industries

Most retail investors come to trading in their accounts by way of investing, and that can sometimes limit their view of what is an acceptable trade. There is a difference between the long-term prospects for a stock, commodity or even an industry, and its prospects for a short-term trade. You may believe, for example, that the march of history makes Tesla (TSLA)’s success and domination of the auto market extremely likely, but that doesn’t mean that you can’t short it occasionally when the market gets carried away, especially given…

The Hottest Solar Stock On The Block

I have, on many occasions here, recommended First Solar (FSLR) as a buy, and yesterday’s earnings release confirmed that view once again. For the second quarter in a row they didn’t just beat street expectations, they shattered them, reporting EPS of $1.95 versus a consensus forecast of $0.84 fueled by sixty percent year-on-year revenue growth. If you took my advice and are long the stock, that is obviously good news, but what should really get you excited is the story behind those blowout results. The base case for owning solar power…

Where To Look For Value This Earnings Season

It’s that time again! A few weeks after the end of each calendar quarter-year, we enter what is known as earnings season, when quarterly results for corporations come thick and fast. As much as we like to kid ourselves that there is some hidden driver of stock prices that only we know, the reality is that they are simply a reflection of the past and expected future profitability of companies, which is what makes this time so important. Big energy companies usually release their results late in the season, which makes now a good time to look…

Natural Gas: Fading the Weather

Traders have a tendency to become obsessed with news and data. When you sit in a room all day trying to predict the next movement in something that is inherently unpredictable it is only natural to look for solid things that could give you clues. Thus, for stock traders, any economic data, no matter how obscure, is pored over and analyzed. Currency traders do the same with anything said by central bankers. For oil traders it is the historically unreliable weekly inventory figures or, even more bizarrely, an estimate of oil stocks from the API that…

Every Investor Should Own This Stock

There are many people who would argue that oil is on the edge of a precipice. The shift towards electric vehicles (EVs) is gaining pace, and without the massive demand for gasoline that comes from the use of internal combustion engines it is hard to see how demand for oil can be maintained. Add in the fact that solar, wind and other alternative power sources continue to get cheaper and more widely used and oil’s future can look bleak. Whether you believe that to be true or not is likely to be largely a function of your politics and your attitude…

Finding The Right Entry Point For A Fundamentally Perfect Trade

In many ways, trading is all about reconciling conflicting information and signals. As I regularly point out to anyone that will listen, if there weren’t compelling reasons to do the exact opposite of what you as a trader intend to do with a particular security you would never trade. Every seller needs a buyer and vice versa, and those on the other side of your trade have presumably looked at the same information and arrived at the opposite conclusion. Prioritizing market trends, news and data is therefore an everyday thing for anybody who…

Long-Term Implications Of Fed Action Could Backfire On Oil

There are many things about my career in interbank forex for which I am thankful. I can swear in multiple languages for example, and feel only amused when I see others in apoplectic rage. I can also still drink a lot without falling over, and hold a conversation while listening to two other things. There are also some more practical lessons that I learned, including that too narrow a focus on the news about one market is not a good idea. That seemed to be the case in energy this week, when the thing that was the focus of most other markets, the…

Multiple Factors Suggest A Contrarian Trade In Oil

Regular readers, god bless them, will be aware that I am a bit of a contrarian. Most dips are buying opportunities to me and commodity rallies result in my cursor hovering over the “Sell” button. It will come as no surprise to them, therefore, that with WTI rallying strongly in the last week and currently trading up around $50, I have been looking for a reason to sell. There are reasons for the run up such as the disruptions caused by Hurricane Harvey, but they are short-term in nature and the fundamental long-term reason for oil’s…

Logical And Illogical Reasons To Short Tesla

For me, shorting Tesla (TSLA) is like crack or heroin for some people…I know it is dangerous and I really shouldn’t do it, but at times the urge overtakes me and I lose all power of resistance. I rationalize it by telling myself that this will be the last time, and that it won’t be for long. This is one of those times. (Click to enlarge)Firstly, just look at that chart! If that pattern of roaring up, dropping and then stalling when trying to resume the upward move doesn’t scream “sell me!” to you, then you aren’t…

Where To Invest After The Hurricane

It should go without saying that the events in Houston and the surrounding area this week have been tragic in human terms. Many lives have been lost and many more devastated by the floods that resulted from Hurricane Harvey. It may seem trite and somewhat heartless to talk about the market implications of an event like that, but once we have donated to relief causes and said our prayers we can only return to our normal lives, and mine involves assessing how events shape markets. In those terms, the reaction to the storm has been interesting. Given…

There Is No Relief In Sight For Energy Investors

Energy investors are desperate for some good news. Even as the broader U.S. market has ignored geopolitical risk and political chaos to keep marching upwards, energy stocks have been quietly collapsing. I would love to tell you that that is about to change and that the sector represents a rare value in an overbought market, but neither technical nor fundamental analysis suggest that. I have said many times before in these pages that technical analysis has its limits. An analysis of a chart can tell you a lot about what has happened, but using it…

Weakness In This Stock Defies Logic

One of the most common mistakes made by traders and investors is the assumption that the market that they are in is logical. They think that, with all the money at stake and all the high-powered minds devoted to trading, the price of anything must reflects a sober consideration of all factors. In reality, markets are more mob rule than collective wisdom, and group think exaggerates faults as much as it reflects analysis. Traders quickly learn that, and two things then become apparent. The first is that there is no point in opposing an illogical…

Why Even Long-Term Energy Investors Should Use Trading Techniques

For many investors, the word “trading” is a scary one. It conjures up images of somebody hunched over a keyboard for hours on end, with a huge bank of screens displaying massive amounts of data and charts. They simply can’t or at least don’t want to put themselves in that situation. That is understandable, but the nature of the energy markets makes it essential that even those whose attention is more fleeting understand and utilize at least some basic trading concepts. The reason for that can be summed up in one word…volatility.…

Weak Dollar Limits Downside For Crude Oil

Over the last few month, the U.S. dollar index, after gaining ground to record highs immediately following the election, has been in a sustained decline since the end of last year, and is now at two and a half year lows. Some would have you believe that that is not a major influence on certain markets, particularly domestic energy markets such as WTI and natural gas, but they are, to put it simply, wrong. (Click to enlarge)One of the biggest mistakes that those new to any market frequently make, is to become far too specific in their area of interest.…

Structuring A Trade For The Top Of The Channel

For any trader, a perfect and clear chart pattern is a wonderful thing to behold. Even those like me who understand that technical and chart analysis has its limitations and will always be overpowered by shifts in fundamental factors finds it difficult to resist the obvious trade in such circumstances. The chart for WTI futures right now shows just such a pattern. In fact, the setup is so perfect that even that obvious trade can be structured in such a way as to guard against the possibility of being wrong. (Click to enlarge)I am sure that even…

This Oilfield Services Company Is A Buy

This morning, oilfield services giant Schlumberger (SLB) announced results for Q2 2017. SLB has dropped around twenty-five percent since the beginning of the year as the effects of the capex cuts by oil companies following crude’s collapse started to bite, and this morning’s numbers looked on the surface like more of the same. Read a little deeper, however, and there is good reason for optimism. That, combined with the type of technical setup that regular readers will know I favor, convinces me that SLB is a great buy at these levels…

Oil Prices: Fundamental And Technical Analysis Conflict

Analysis of markets of any kind, stocks, bonds, currencies or commodities basically falls into one of two categories, fundamental and technical. In an ideal world both types of analysis support trading in a particular direction. When that is the case the short term moves that technical analysis usually indicates can be used to set up a longer-term position that allows you to take advantage of the fundamental picture. Sometimes, however, it is not that simple as each way of looking at things indicates a move in a different direction. That is where…

Betting On A Survivor

Around three years ago, in June of 2014, oil began a spectacular collapse. After rising to the point where WTI was fetching over $100 a barrel and holding that psychologically important level for a few months, the market turned. Six months after the rout began the price of a barrel of oil had halved, leaving a lot of companies in a lot of trouble. The hardest hit businesses in the industry were small exploration and production (E&P) companies. Even those that saw it as an anomaly rather than a new normal had worked on assumptions that seemed…

The Market Ignored the Paris Accord Announcement And You Should Too

I come from a background where news is important. In the minutes preceding a scheduled major announcement of any kind, an eerie quiet would descend on the normally brash and chaotic dealing rooms where I used to work as everybody stared intensely at their monitors, ready to spring into action once the news was out. What I quickly came to understand though was that it wasn’t the news itself that was eagerly anticipated; it was the reaction to it. News creates volatility, and for a trader volatility equates to opportunity. The actual data or…

The Reaction To The OPEC Deal Extension Is Logical, But Flawed

Those new to financial markets, and energy trading in particular, were probably somewhat puzzled by the price action in oil futures this week following the announcement by OPEC and some influential non-OPEC nations that they are extending the production cuts agreed last year for another nine months, until the end of Q1 2018. The logical reaction to that news would have been a spike in oil, but instead we saw a dramatic decline of around five percent once the announcement was made. That is easily explained in terms of trading dynamics, but one question…

When Technicals And Fundamentals Come Together

Regular readers will by now be aware that I have a preferred style of trading. It is essentially contrarian and I like to buy things that have been under pressure, but with the caveat that I usually wait until there are signs of a turnaround. That does leave me vulnerable to the occasional dead cat bounce but the damage from those occasions is limited as a result of the new low providing a logical level for a stop loss order. There are a couple of energy stocks that fit that description right now, but Antero Resources (AR) is particularly appealing.…

Oil Futures Trading 101

When contributing to these pages I generally start from the assumption that anybody reading my ramblings is already an active trader, or at least a self directed investor, and therefore understands the basics of trading and investing in the energy markets. A reader recently contacted me, however, and informed me in no uncertain terms that that is not always the case. He said that he had subscribed here to learn about the energy markets and that my arrogance in assuming a certain degree of knowledge had become frustrating. He was nice enough to…

3 Reasons Natural Gas Is Heading A Lot Higher

Commodity pricing is a complex thing, with a whole host of things affecting the price at which buyers and sellers transact, but almost all of those things fall into one of three categories; the fundamental, the political and the technical. These three things are often in conflict, but when they all point to the same thing a major, sustained move is coming. That is the case right now with U.S. natural gas and the resulting move could easily push prices to levels not seen for years. Supply & Demand Fundamentals Commodity specific fundamental…

OPEC Is Not What It Was But Can Still Be An Influence

Conventional wisdom among those that follow energy markets and oil in particular is that OPEC is not what it once was. For a few decades the cartel of oil producing nations was both feared and revered around the world. They had the power to effectively set the price of oil in the global market and, in using that power, could alter the economic conditions in all of the world’s major powers. Why that is no longer the case is a complicated question, but one which bears examining, especially now that crude has collapsed out of its range even…

WTI Is Still Ranging And On The Turn

A couple of weeks ago I opined in these very pages that WTI was essentially trading in a range created by sensitivity to its own price. The theory was that somewhere around the $51 level seemed to be pivotal, with production increasing above that point and decreasing below it. The natural tendency of markets to overshoot means that the range created extends several dollars either side of that point and the tendency of traders to place orders just inside a range means that it will narrow over time. That would give us a bottom somewhere around the…

Why This Offshore Player Deserves A Second Chance

There are many big differences between trading and investing from “inside” the market and doing so from “outside”. When you are sitting at a trading desk and following markets every minute of every day you can be fairly sure that you don’t miss much. When a move looks illogical, therefore, it probably is and you react with the appropriate confidence. On the outside, however, when something is moving in a way that defies explanation one’s first reaction is normally “What did I miss?” That is the thing…

Why WTI Is Stuck In A Range And Why That Is Good for Traders

Basic economic theory would suggest that pricing of goods and commodities is pretty simple. It is a function of supply and demand. Reduced supply and/or increased demand create scarcity that pushes price up and the opposite is true if supply is increased or demand falters. Anybody who has ever traded, however, knows different. What is usually much more important is the anticipation of such changes. All markets are forward discounting mechanisms, so pricing reflects a combination of the past, present and predicted future of supply and demand conditions.…

Ignore The Words Of The Politicians: Buy Solar

Drawing conclusions about trading and investing based on the words of any politician is a dangerous game at the best of times, and the evidence so far suggests that that is even more the case when it comes to President Trump. He is, as businessmen usually are, a pragmatist at heart. The lack of a politician’s clear ideology makes him react to each situation as he sees fit, regardless of what he said or did in the past. Now you may see that as a good thing or a bad thing, but the one thing that it undeniably is is confusing. So, if the President’s…

However You Look At It Petrobras Is A Buy

Trade ideas usually come from one of two sources. Either they are fundamental or technical. Fundamental ideas reflect a change, or more often an expected change, in the fortunes of a company or the broader economy. That may be realizing a higher price for their product, increasing sales through higher demand, or it may be improving margins. Sometimes it is company specific and sometimes it is industry wide. Ideas of a technical nature come from the analysis of charts. Logically, historical patterns in pricing should not have any impact on the current…

The No.1 Contrarian Play In Oil

Regular readers of my ramblings will be aware that I don’t believe that this drop in oil will be of any long term significance. It is understandable, for sure, as the focus is on supply figures and inventories that indicate that U.S. shale producers are back in business and at least making up for the OPEC cuts. There are, however, three reasons that it is not a long term price adjustment. Firstly, that shale production is, as we are already all too aware, extremely price sensitive. It has become the marginal source of oil and the cutoff for…