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…

Investing In The Nuclear Renaissance

Since the election in November energy stocks have soared, with most of the attention being on conventional oil and gas producers. That makes sense, but traders and investors should not ignore the renaissance currently underway in another energy industry, nuclear power. The conventional wisdom about the energy sector under a Trump Presidency is well known, and perfectly logical. Fossil fuels are back. Some of the campaign rhetoric that led to that belief, of course, is just that, words with no practical impact. There is a limit to what a President…

Range Trading 101

Let’s face it; you don’t have to be a chart reading genius to know that WTI has been trading in a pretty tight range for the last couple of months. After a year and a half of volatility where moves were marked by strong momentum we have entered a period of short lived, half hearted direction changes. This stasis is not the result of a lack of interest or news, but simply that WTI is caught in a “push me pull you” scenario where the two major trends in fundamental outlook contradict each other. The OPEC production cuts should…

OPEC Deal Looks Shaky Despite ‘Good’ Compliance Rate

The oil markets were boosted overnight by the news from the International Energy Agency (IEA) that compliance to the schedule of cuts agreed by OPEC to start on January 1st this year was at record levels. Those unfamiliar with the workings of OPEC may be surprised to learn that those “record levels” are only 90%. Surely, you might think, compliance with something like that, agreed by all the parties to the cut, should be 100%. You may also think that cutting output by “only” 2% would mean that everyone could do their part.…

The Dollar Will Decide Oil’s Next Move

Regular readers will know that I believe that one of the most important fundamental influences on the price of oil is the relative strength or weakness of the U.S. Dollar. Obviously according to economics 101 supply and demand ultimately set the price of any commodity, but when, as is the case with oil, that commodity is priced in dollars in a global market the intrinsic value of the dollar is just as important. Normally the dollar index, which gives the average value of the dollar against a basket of other currencies, moves fairly slowly so judging…

Fundamentals Be Damned – Oil Price Correction Likely

There are basically two ways to analyze markets and make trading decisions, the fundamental and the technical. Logically speaking, fundamental factors and analysis always have the upper hand, particularly over a longer time period. In the case of crude oil, for example, if supply is outstripping demand the price is going down, no matter what your charts indicate. In the short term, though, as traders pay attention to technical factors they can be enormously powerful. Right now there is a battle going on between the fundamental and technical in…

Bullish Fundamentals Can’t Prevent A Correction In Oil

There are basically two ways to analyze markets and make trading decisions, the fundamental and the technical. Logically speaking, fundamental factors and analysis always have the upper hand, particularly over a longer time period. In the case of crude oil, for example, if supply is outstripping demand the price is going down, no matter what your charts indicate. In the short term, though, as traders pay attention to technical factors they can be enormously powerful. Right now there is a battle going on between the fundamental and technical in…

Tesla Is Overweight, Time To Short It

First, let me apologize if, given that this is inauguration day, you were expecting me to write another piece about investing under President Trump. It is not that I don’t believe that the fossil fuel industry will do well under the new administration. That seems to be rather obvious, but has also been said many times, and if you aren’t positioned for that now it is a little late. Given that dynamic and my background as a trader rather than a long term investor I would rather focus on a short term trading opportunity than attempt to…

Prepare For Another Shift In Mood In Oil Markets

No matter how many times I witness it (and after nearly thirty years in and around financial markets that number is probably in the thousands) the fact that the mood of a market can change on a dime with no obvious change in circumstances still amazes me. That is what happened in the oil futures market a week or so ago, when the positivity surrounding the upcoming OPEC agreement to cut production changed to doubts that the deal would hold or have the anticipated effect. Nothing had actually changed with respect to the agreement, but somehow the…

Could 2017 Be A Banner Year For Natural Gas?

2016 was, in the main, a decent year for those who believe in the huge potential of U.S. natural gas. Chronic oversupply and a consistent build in reserves saw the price of the commodity fall dramatically in 2014 and 2015, but it bottomed in February of last year and has been recovering ever since. Despite that, prices are still around 50 percent lower than the peak three years ago, but there are good reasons to believe that the rally in gas prices will continue this year. (Click to enlarge)President-elect Trump has made it clear that he intends…

Oil & Gas Predictions For 2017

This will be my last article of 2016 as I am taking a couple of weeks off to return to England and spend Christmas with my family. I mention that not because I expect any of you to care, but to explain why this week’s article will deal with the prospects for energy markets in 2017 a couple of weeks earlier than is customary. Before we get into what to expect next year, though, it is worth looking back on 2016 and seeing what lessons we can learn from the two big energy markets, oil and natural gas. Both are markets that are frequently volatile,…

Coal – Don’t Try To Catch A Falling Knife

When a particular market or stocks in a particular industry have been under pressure for a while traders and investors tend to search for some good news. Maybe it is the natural human disposition towards optimism or the inherent love of a contrarian trade, but the worse it gets the more likely a relatively strong rally on anything remotely positive becomes. This can produce great results for those that bought on a “how low can it go?” basis, but for the rest of us it can be a dangerous time. The negatives that caused the drop get forgotten…

Why Shorting NatGas Makes Sense Now

That rare and wonderful thing, the regular reader of my ramblings in these pages, may remember that four weeks ago I wrote that, while natural gas may have further to drop from the levels at that time, it was a solid buy once there was a sign of slowing momentum and a turnaround. I try not to toot my own horn too much, but here is what happened in that market since then. (Click to enlarge) That was, I guess, not a bad call, but it is now time to reverse it. The things that partially drove that call, higher WTI prices, increased natural gas exports,…

Playing The Overreaction To The Election Results

One of the most basic things that those new to the world of trading have to understand is that markets overreact to news. Traders are essentially herd animals, and once momentum builds in any direction it can be hard to reverse and as a result usually overshoots the logical mark. That is almost certainly the case now with solar stocks in the U.S. market. Don’t get me wrong, I don’t think that the election of Trump is a good thing for alternative energy. The candidate Trump made it clear in his campaign that his administration would…

How To Play The Trump Election In Oil & Gas?

Given what we know from the seemingly eternal Presidential election campaign it would seem that the answer to the question “What does Trump’s election mean for energy?” is an obvious one. As a candidate Donald Trump often referred to “…unleashing the power of America’s oil, gas and coal reserves…” and made it clear that his administration would be focused on traditional fossil fuel energy. The obvious conclusion from that is that we are about to enter a boom period for the energy markets and indeed…

Why I am Holding off on Natural Gas Even Though it Looks like a Buy at These Lev

One of the things that it is important for traders to understand is that markets have a natural tendency to overshoot. The classic zigzag pattern either heading up or down that most people think of when they think of a stock chart is the direct result of that. When a move starts, momentum builds to the point where an overshoot from the logical endpoint of that move is inevitable, and when that point is reached a correction ensues. That too will overshoot and the move resumes in the original direction, momentum builds to push it just a little too…

Why Oil Bears Should be Alert to the Possibility of a Reversal Next Week

Regular readers will be aware that I have, for the last few weeks, been generally bearish on the price of oil, and for two main reasons. The strength of the dollar had until recently gone unnoticed in much of the financial media, but it has been a sharp climb and, while the inverse relationship between the dollar and oil is not a perfect, tick for tick thing, a high dollar does put a cap on oil’s upside potential and keeps pressure to the downside. In addition, the main reason for oil’s climb a month or so ago, the potential agreement…