This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Trade the Late Seasonal Rally in Energy

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( The FRED Report) -- We are still holding on to our expected rally theme as highlighted in last week's article. As long as $120 holds on SPY (SPY) then we remain favorable on U.S. equity markets into year-end. We highlighted this level along with other market observations in our weekly conference call yesterday. You can listen to the recording here.

Follow TheStreet on Twitter and become a fan on Facebook.

oil

As such this week we will talk about our favorite sector seasonal trade in the market. This is to buy oil or oil stocks at the end of October and sell them at the end of January. Various authors have written about this seasonal tendency, and the way we take advantage of it is to be ready to get a buy signal in October, and then be sure to take it should it occur. This concept was also discussed in our call yesterday. Listen to the energy portion of the call here. First, we look at United States Oil (USO), the ETF for oil. Notice how the stochastic indicator went below, and then above, 20, and the moving averages crossed shortly after.

The next stage of our analysis is to look at heating oil, as it is a bit more sensitive at this time of year to supply and demand. Readers can see that the same pattern occurred on heating oil at the same time, confirmation that this trade has a better chance of working.

The last stage of our analysis is to see where energy stock ETFs are in the mix. Sometimes, these stocks rally in anticipation of an oil rally, so there is no real trading opportunity in the stocks. In other cases, these ETFs make a low along with the commodity. Again, we look at the situation in Energy Select Sector SPDR (XLE) and Oil Services HOLDRS (OIH) this year, and note that these ETFs had fallen along with oil.

Historically, the seasonal oil rally works around 7.5 times out of 10, so if the signals line up, this represents an excellent trading opportunity on the buy side. Here at the FRED Report we look for it every year at this time. This may be something you could add to your own trading repertoire.

Fred Meissner is founder and publisher of The Fred Report. Fred is a CMT and past President of the Market Technicians Association (MTA). He recently left Merrill Lynch's Market Analysis Department and Sector Strategy Department to form The Fred Report.�A detailed bio is here:Fred Meissner.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
USO $19.66 -0.02%
UHN $23.80 -0.12%
OIH $37.63 1.20%
XLE $81.94 -0.05%
YHOO $44.46 -0.13%

Markets

DOW 18,069.30 -10.84 -0.06%
S&P 500 2,113.39 -4.30 -0.20%
NASDAQ 5,070.8430 -21.2420 -0.42%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs