February brought on some of the most severe weather in the northeast section of the United States. Airports were closed and Washington stood in a gridlock, not political, a literal traffic gridlock due to snow.
The severe weather was not just isolated to the U.S., northern China has felt the lowest temperatures in half a century and they have had their share of snow as well. Headlines read: “Temperatures in northern China may fall to the lowest in half a century as the Chinese capital recovers from the heaviest snowfall in almost six decades.”
Sound familiar? If you live anywhere in the northern half of the U.S., 2010 has brought on significantly colder and wetter than normal weather patterns. What does this mean? News broadcasts claim the weather will reduce productivity, retail sales will decline, but I have not heard about demand for fuel, used heavily in the cleanup process and as a source of heat, which could put a dent in supplies, thus cause a price spike in both crude oil and natural gas.
To heat matters more, President Obama’s Administration is beginning to talk more about clean energy legislation and tying it to job creation and less about cap-and-trade. At Wednesday's clean energy forum, White House energy and climate adviser Carole Browner stressed the need for legislation to eliminate dependence on foreign oil, put a price on carbon emissions and mandate an increase in electricity from renewable sources. She said this is about creating a new generation of clean energy jobs that will position the U.S. in a global market, and new legislation is needed to accomplish these goals.
Senators leading efforts to write a bipartisan climate bill have signaled they will keep pushing hard for legislation that would curb emissions of greenhouse gases and boost development of alternative energy.
In the midst of an election where Democrats could be defeated in the Senate, it does not seem likely that a new energy bill will be passed in the next six months. This gives traders the potential to take a seasonal long trade in both natural gas and crude oil. As readers of the Commodity Trader’s Almanac (CTA), you will note on page 126, both of these products start their best seasonal trades in February.
Also in the CTA on page 22, we state crude oil makes a strong seasonal bottom registering a whopping 76.9% win ratio with 20 gains in 26 years. Last year, 2009, marked a seasonal low in the front month crude oil futures contract at 33.55. Natural gas also generates a stellar trade from its mid-winter bottom with a 78.9% success rate, gaining 15 out of the last 19 years (CTA page 28).
From a stock pickers perspective I am eying several issues at this time. I like the refiners, and from a technical perspective I like Exxon Mobil (XOM) as it has traded in a range between 62.00 and 75 for the last 52 weeks. Currently it is trading at 65.23. The chart below shows the longer term sideways channel that Exxon has traded in since late 2008. My expectations are for prices to trade back to the 72.00 level by June.
Other stocks that look attractive from a risk to reward ratio are Peabody Energy (BTU) and Occidental Petroleum (OXY).
The next stock I like is Nabors Industries (NBR), the chart below shows a nice trading pattern of higher peaks and higher troughs. This stock could see a re-test of the 27.00 level before June.
I want to stick with high beta stocks in the crude oil and natural gas sectors as this is a seasonally strong period, In addition, I believe as we move forward with stagnant GDP growth, we will still need and consume energy, both from a global and domestic perspective.
John Person is a Professional Trader with 30 years of experience in the Futures and Options trading markets. He started on the Floor of the Chicago Mercantile Exchange back in 1979. He worked with George Lane, the innovator of Stochastics. John is the President of Nationalfutures.com, an Investment Advisory service and is a registered Commodity Trading Advisor. In 1998, he developed his own proprietary trading system and began publishing “The Bottom-Line Financial and Futures Newsletter,” a weekly commodity publication. He is the author of several popular trading books all published by John Wiley and Sons. The nation’s most respected business journalists call him for his market opinions. He is widely quoted by MarketWatch, Barron’s, Reuters, Dow Jones, and appears regularly on CNBC. Disclosure Note: At press time, Mr. Person held a position in XOM. Officers of the Hirsch Organization did not hold any positions in securities mentioned.
