Energy Cycle Shifts

With energy stocks struggling to catch a bid, many investors are wondering if this is the end of the oilfield cycle. Combined with the decline in both crude and especially natural gas, there appear to be some worrisome signs on the horizon for energy equities.

To say the stocks have not had a good week may be an understatement. Through early Friday morning, the energy complex -- as measured by the Philadelphia Oilfield Service Index (OSX) -- was down nearly 8% for the week and about 14% off the highs set in mid-May. Nobody can argue that such a sharp correction isn't painful.

However, recent history suggests such corrections in the oil patch are followed by meaningful rallies. In 2005, for example, the OSX saw two 15%-plus corrections that were followed by rallies to new highs. While past performance is no guarantee of the future, the recent volatility in the energy complex shouldn't be considered out of context with activity of the past several months.

However, there are some differences that deserve mention and some strategies that should make sense as investors position themselves in energy in the coming weeks. ...