How to Trade Energy’s Seasonal Tailwind 

From the Desk of Ian Culley @IanCulley

It’s time to turn our attention to the energy space.

The same market conditions that favored energy in Q3 of last year are brewing. 

Interest rates are rising. King Dollar is refusing to step aside.

And energy contracts – especially crude oil – are entering a historically strong period of the year.

Check out crude oil’s seasonality since 1984: 

February kicks off the strongest four-month period of the year.

Meanwhile, energy contracts are forming potential bullish reversals.

Perhaps last month’s crude oil breakout has been sloppy. But buyers reclaimed our risk level yesterday – right around when crude tends to bottom. 

Here’s crude’s seasonality for the next two months (February through March):

Up and to the right! 

Seasonality paints a bullish picture for oil and this chart doesn’t include April – black gold’s strongest month of the year.

Of course, seasonals alone aren’t a reason to take a position.

Instead, they reveal an aspect of the market environment, like positioning and sentiment.

Regardless of how one weighs the evidence, bullish data points shift to energy’s corner. And I plan on following a rotation into oil and gas stocks. 

Here’s Weatherford Intl. $WFRD, a $7B oil services name:

Last October, we outlined a bullish setup in WFRD in our Commodity Trade of the Week.

The stock has consolidated within a tight range since, forming a four-month rectangle.

If and when WFRD closes above 100, I’m long targeting 152.

It’s a favorable environment for energy. 

Rates continue to rise, and the US dollar reigns supreme.

Plus, seasonal strength adds to a bullish bias for crude oil and its distillates.

If these trends continue, those often overlooked oil and gas names will provide profits while most stocks fall under selling pressure.

Stay tuned.

COT Heatmap Highlights

• Commercial hedgers post another record-long position in corn.
• Commercials add more than 15,000 contracts to their long soybean position, falling within 5,000 contracts of the record.   
• Commercial hedgers pull within three percent of their smallest net-short position for crude oil in three years. 

Click here to download the All Star Charts COT Heatmap.