Sunday, February 19, 2006

Jubak: This too shall pass.

An article from Jim Jubak with much valuable insight on the seasonality of the oil sector and current dynamics. It's well worth reading in it's entirety.

On a sidenote, throw APC into his list of stocks at the end, and I think you have a reasonable starting list of future potential takeout candidates.

MSN Money: Hard winter for the oil sector.


If it's February, the price of crude oil must be tanking -- and taking down oil stocks with it. Over the last 26 years, according to, on average crude oil prices have peaked in late January and plunged to a low at the end of February or the beginning of March. (There's another seasonal peak in October and another seasonal low in December.)

So it really shouldn't come as a surprise to investors that the AMEX Oil Index ($XOI.X) peaked on Jan. 31 and has been tumbling ever since. There's certainly no reason to panic and abandon this sector of the stock market. On average, a seasonal drop like this is followed by a strong seasonal rally that lasts into May.

But while the general seasonal pattern is familiar, I think this drop will be deeper than usual and the rally will arrive later than expected.

Stocks of oil producers, oil drillers and oil-service companies will bounce back. The energy rally isn't over by a long stretch. If you've held onto your energy stocks through the decline to date -- already 11.5% on Feb. 15 from the Jan. 31 high -- I think you should continue to hold. If you've been looking to buy on the dip, I think it's time to start building positions. But only if you have the patience to wait out a drop that could be over in two to three weeks or that might stretch well into the second quarter of 2006.