Sell your energy stocks
Posted by Frugal on May 15th, 2009
With the exception of uranium, I am not so hopeful on energy industry for this year. If you don’t sell them this round, there may be one more chance after some 1 or 2 weeks of the current short-term corrections. After that, energy stocks will probably drop along the general market, with bigger percentage of course.
The inventory picture for crude oil is simply terrible. Too many speculators have been playing the contango in the commodity futures market. What has been happening is that short-term price dropped too fast, while the longer term prices held up much better. A contango (higher future prices than current prices) in the futures market encourages traders to take current delivery, store it, and sell the futures at the same time. What resulted is basically additional (false) current demands that cushion the oil producers, at the expense of increase in future supplies from the release of inventory.
When inventory increases, it simply means that oil producers are not cutting production fast enough to match the fall in demand. That doesn’t bode well at all for the future prices.
I maintain my position that we will probably see something like a double-top formation in the general stock markets, with a second top forming at about June 15, plus or minus 1 week. After the second top falls off from the support trend line, the “sell in May, and go away” will reassert its power.
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May 17th, 2009 at 8:06 pm
Certainly, energy stocks are looking like they will deplete for a while. A huge chance that they may show resistance in the future is quite certain though.
May 18th, 2009 at 10:12 am
Interesting thoughts. Do you think the lower price of oil might take production off the line, especially the Canadian oil sands? I do agree that we are going to have an ugly summer and fall.