Saturday, October 12, 2013

Oil Prices Trend Lower. But This Energy Fund Is A Winner (3 Charts) ...

I'm choosing today's energy winner for a few reasons, which I'll explain in a minute. 

First, the pick o' the day. The SPDR S&P Oil & Gas Equipment & Services ETF (XES) ...

(Updated chart)

As you can see, the XES is breaking out of its recent range. You could buy it with a stop at either the recent bottom of the range ($41.50) Or below the 50-day moving average OR below the recent uptrend if you have a stomach for risk and  big ol' brass ones.

Why I chose XES ...

1. Obviously, it's breaking out. My target is $62.

2. It's indicative of what's going on in the industry. Increasing oil demand is driving oilfield service activity. 

3. It's an example of how select energy stocks and funds can do well even when oil prices go lower
(Updated chart)

In the short term, oil prices look to get weaker.  Sure, the bigger trend is up. If we get a test of support around $99, that's probably a great buying opportunity.

So why do energy stocks go up when oil goes down? While the price of oil is becoming more and more a reflection of global demand, there are still blockages getting oil out of Cushing, and prices could remain under pressure for a bit as American oil production continues to crank higher. Meanwhile, plenty of companies are VERY comfortable with oil in the $100+ range, and they want to pump more oil. So, the oilfield services companies are doing booming business.

Finally, oil services companies are being helped by the breakout in natural gas prices, which I talked about on Wednesday. We've seen follow-through as nat-gas moves to multi-month highs. This is sparking new interest in drilling for nat-gas and associated liquids.

I've seen multiple stories that the government shutdown is going to negatively impact the oil industry. So far, the action in oil industry stocks is calling those reports wrong. We'll see how it goes, though.

And remember, there are plenty of companies that do better when oil prices go lower.  Airlines (Spirit, US Airways, Delta), for one. Travel companies (Allegiant Travel) for another. Companies that use oil as an input -- for example, agricultural chemical companies like American Vanguard. 

Those are just some ideas.  In any case, these three charts show that while oil prices may be headed lower, select oil industry stocks and funds should head higher. 

I'm not your investment advisor. Do your own due diligence before buying anything.  And a smart investor would have a stop in mind -- and a profit target -- before buying anything.

1 comment:

  1. I am fully agree with your given article information. I really admire to this nice blog to post this superior post.
    Biogas Plant in Kerala