Many oil and gas stocks are historically bearish during the summer months
At the beginning of each month, Schaeffers Senior Quantitative Analyst Rocky White distributes the stocks with the best and worst performance to the S&P 500 Index (SPX) in the past 10 years. At the beginning of a new month, when the Excel document for July was opened, the first five to fell 25 shares on the “worst” list were oil and gas producers. With gas prices rising and the summer travel season looking more like 2019 than 2020, it seemed time to unpack the energy sector for the second half of the year.
It’s been an excellent six to twelve months for energy. Ethanol, gasoline, crude oil and natural gas are all in the top 10 year-to-date and year-over-year relative performance. According to a sector analysis conducted by White, 83% of oil and gas stocks are above their 80-day moving average, with the 41 stock market tickers under that roof showing an average year-to-date return of 64.4%. This is the strongest return of the sectors covered, well outperforming the Travel & Leisure sector’s 60% increase in 2021.
According to White’s data, ConocoPhillips (NYSE: COP), Marathon Oil Corporation (NYSE: MRO), and Exxon Mobil (NYSE: XOM) sport July returns of -3.5%, -3.4% and -2% respectively. For XOM, only two of the last 10 July ended in positive territory. Exxon Mobil’s market cap peaked at $ 500 billion in 2008, but is now around half that level.
Remember that SPDR Fund for the Energy Sector (XLE) similarly uninspiring seasonal returns for the summer. In a table compiled by Schaeffer’s Senior Market Strategist Chris Prybal, you can see below that XLE’s monthly returns are lowest in July, August and September.
It’s hard to say, looking at the graph below, whether this rating number will play a psychological role for XOM. What’s noteworthy, however, is that XOM’s market cap fell to $ 133 billion at the Covid-19 lows, which is roughly half its current market cap. On the XOM chart, $ 59 equals the market cap of $ 250 billion, so keep an eye on this area as a potential turning point this summer.
It’s important to keep in mind that when talking about a possible July pullback for COP, MRO, and XOM, those seasonal drops would still move stocks within chip-shots of the yearly highs made earlier this summer. In other words, this is not so much the prediction of a catastrophic sell-off, but rather a short-term pause for bulls to catch their breath or discover an attractive entry point.
Last Thursday, US crude oil price topped $ 75 a barrel, its highest level since 2018. This has thoughts about the attraction of electric vehicles, considerations about the Organization of Petroleum Exporting Countries and Their Allies (OPEC +), and general hand – snatch from the masses if the Price of the pump rises above $ 3.
Whether these warning signs are enough to warrant a game or not, the implied volatilities of COP, MRO and XOM are comfortable for options traders. Their Schaeffers Volatility Index (SVI), an average implied-at-the-money (ATM) volatility of a stock’s front month options, is 31%, 48% and 25%, respectively, all below the 10th percentile of their respective annual ranges. This underscores an attractive buying opportunity for all three stocks – regardless of what the seasonal trends suggest.
Bernie Schaeffer’s subscribers Chart of the week received this comment on Sunday 4th July.