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