Until the winter demand cycle appears I doubt we will see any material change in oil stocks. It is more of a trading market than an investing market until conditions return to normal.
If you have been watching my trading stock pick, AHC, you were probably amazed by the volatility over the last week. AHC rallied from $122 to over $131 in four days and only gave back -2.39 on Friday. This is a remarkable rebound from the $110 low we saw eight days ago. This stock is far too volatile to play at this level in the LEAPS portfolio but another dip to the 100-day average at $122 could make a very inviting target.
The massacre in the refining sector on Friday left me wondering if we could see another dip next week back to support levels where an entry would be safer. I would love to play Valero but options and volatility are extreme. I am going to add them just in case we get a strong dip back to $100 but I am not hopeful. I feel our better chance is with Sunoco for a tamer but still profitable ride.
I am going to list both as candidates BUT ONLY TAKE ONE. Whichever hits the trigger first is the one we are going to play. The refiners are far too volatile to add them both at this time of year.
I am expecting gas prices to dip lower next week due to another warm weather forecast. Once that first really cold surge of artic weather hits the trend will change and we can board the gas train then.
Drillers have been moving higher but are approaching resistance after a strong set of earnings from that sector. I believe the story is already priced into those stocks and would rather pass. As production comes back online in the Gulf that tells me that repairs have been made and equipment companies like NOV are probably going back to business as usual.
We already have the best integrated oil in the portfolio (COP), the best gas producer (CHK) and the best coal stock (BTU). That leaves us hoping to snare a refiner and maybe another pipeline stock before settling down for our turkey dinner and a nap until late December. This is not the time of year for large energy portfolios but I do plan on keeping my eyes open for bargains.
Current Watch List
SUN - $72.68 Sunoco
Sunoco, Inc. operates through its subsidiaries as a petroleum refiner and marketer, and chemicals manufacturer with interests in logistics and cokemaking. Sunoco's petroleum refining and marketing operations include the manufacturing and marketing of a range of petroleum products, including fuels, lubricants and some petrochemicals. Sunoco's chemical operations consist of the manufacturing, distribution and marketing of commodity and intermediate petrochemicals. The Company's operations are organized into five business segments: refining and supply, retail marketing, chemicals, logistics and coke.
Breakdown Target $70
Breakout Target: NONE
VLO - $105.50 Valero
Valero Energy Corporation (Valero) owns and operates 15 refineries having a combined throughput capacity, including crude oil and other feedstocks, of approximately 2.5 million barrels per day. Valero produces environmentally clean refined products, such as reformulated gasoline (RFG), gasoline meeting the specifications of the California Air Resources Board (CARB), CARB diesel fuel, low-sulfur diesel fuel and oxygenates (liquid hydrocarbon compounds containing oxygen). It also produces conventional gasolines, distillates, jet fuel, asphalt and petrochemicals. Valero markets branded and unbranded refined products on a wholesale basis in the United States and Canada through a bulk and rack marketing network. It sells refined products through a network of more than 4,700 retail and wholesale branded outlets in the United States, Canada and Aruba. Valero's retail operations include approximately 1,500 company-operated sites that sell transportation fuels and convenience store merchandise.
Breakdown target $100
LEAPS are far too expensive and I would expect to be out of the trade by Christmas at the latest.
Stop loss $94
Breakout Target: NONE