|Dow||+46.34 to 18,070.40|
|S&P 500||+6.20 to 2,114.49|
|Nasdaq||+11.54 to 5,016.93|
|10-YR Yield||+.018 to 2.135%|
|Gold||+$13.60 to $1,188.10|
|Crude Oil||-$0.22 to $58.93|
When it comes to energy, my “Enough is Enough!” indicator is flashing “Buy!”
It’s saying … no, screaming … that a major turn in prices is at hand.
And it’s not something I just cooked up a few days ago. This indicator has a very long history of accurately calling turns in the energy markets.
What is this indicator? The rig count data released by Baker Hughes (BHI, Weiss Ratings: B-)!
If you’re not familiar, the oilfield services firm has been tracking the number of rigs actively drilling for oil and gas in the U.S. and Canada for decades. It releases the numbers weekly, each and every Friday afternoon.
The more rigs BHI finds hard at work in the energy patch, the more future supply you can expect to come on line. We saw counts surge in the mid-2000s as the shale energy boom got underway, foretelling the explosion in U.S. energy production.
But if you go back in history, you’ll see several drilling busts, too. The late-1990s, when the Asian and Russian financial crises helped crater emerging markets demand. The early-2000s when the dot-com bust sent the U.S. economy into recession. The 2008-2009 Great Recession resulting from the housing and mortgage market collapse. They all led to sharp, double-digit annualized declines in drilling activity.
But the mother of all crashes came at the end of 1985 and early 1986. That’s when the Saudis flooded the market with oil to punish other OPEC countries for cheating on production quotas, and to prevent non-OPEC producers from grabbing market share from the cartel. Companies mothballed so many rigs, so quickly, that drilling activity plunged at an annualized rate of almost 83 percent!
Take a look at this table. It shows every one of those collapses in drilling activity that I just mentioned …
It also shows the current collapse at the bottom. And something should jump right out at you: The 2014-2015 decline is the worst going all the way back to that fateful 1985-86, Saudi-driven crash! It also makes the declines from the Asian financial crisis and the dot-bomb recession look like peanuts by comparison.
So we should all huddle in fear and dump our energy stocks, right? Not on your life! Because if you go back and look at what energy prices and energy stocks did after those historical crashes, you’ll find a consistent pattern …
And not by small amounts, either! Many stocks doubled, tripled, quadrupled, or more — with the biggest rallies occurring after the worst implosions.
|“I’d hate for one of the juiciest profit opportunities I’ve ever seen pass you by.”|
That’s because plunging drilling activity curbed production. Each and every time. That, in turn, allowed growing demand to catch up and eliminate inventory surpluses — restoring profitability across the board.
Are you starting to see the picture here? Is it becoming a bit clearer why I’m so excited about energy investing today? Can you see how the Baker Hughes rig count data is screaming that “Enough is Enough!” with the energy selloff … and that the time to buy is here? I sure hope so, because I’d hate for one of the juiciest profit opportunities I’ve ever seen pass you by.
So what do you think? Is it time to say “Enough is Enough?” Do you follow the rig count data, and if so, what is it telling you about prospects in the energy patch? Do you think oil is the best play here? Natural gas? Alternatives? Hit up the website and share your thoughts when you have a minute.
|Our Readers Speak|
Speaking of nat gas, is it starting to make a big turn? Or is the recent rally in price nothing to get excited about? That’s the debate you were having over at the website this weekend.
Reader Harry McG. said: “I agree that gas could be a good play. But don’t you think we can buy in a bit cheaper as we enter the summer months when gas demand for heat goes down?”
Reader Jim said: “Continuing with the water shortage theme, one of the big losers will be hydroelectric power generation. If they have to conserve water out West, and the war on coal continues, the only fuel they could switch to now would be natural gas.”
Reader Robert C. added: “I think gas has great potential. As soon as the gas export facility, which is located in Louisiana, is completed, we can start exporting natural gas to Europe and Asia. If we make cars that run on natural gas, that will only increase the demand. We need to get the politicians out of our way and start building the infrastructure to connect every gas station to natural gas.”
Finally, Reader George said: “How about the wild ride one could take with the 3X ETFs GASL and UWTI? I’ve done okay recently with the latter one. Obviously, there can be heavy rewards if the prices of natural gas and crude oil keep rising; however, the possibility of sustaining the contrary must be considered.”
Thanks for all the comments! Let me try to address them as best I can. I think Jim is on the right track by talking about the hydroelectric tie-in here. Coal is clearly being de-emphasized already, and the drought worries out West will definitely boost interest in nat gas as a replacement or back-up fuel for power generation.
Reader Robert zeroed in on another important driver of gas demand in the coming couple of years: exports! It takes a long time to plan, permit, and build facilities to export nat gas. But as those facilities come online over the next half-decade or so, it will help re-direct our surplus gas to markets that need it. That will help a wide range of gas-focused firms, from producers to transporters to shippers and more!
As for timing the exact bottom in gas, I was very encouraged by the technical action in the past week. We had a very high-volume reversal, and are now challenging some key overhead resistance areas. Nat gas stocks are also trading even better than the commodity.
Does that mean we’ve seen the ASBOLUTE LOW for gas? I can’t say for sure. What I can say is that I’m seeing enough evidence of a turn to get more involved, which is precisely why I’m highlighting this exciting new trend for you!
Anything else you want to add to the discussion? Then here’s the link to get started!
|Other Developments of the Day|
All the bond market gains from Mario Draghi’s “Euro-QE” went “poof” last week, according to Bloomberg. The 1.1 trillion euro program drove European bond prices through the roof, and bond yields below zero percent across the Continent. But investors sold those bonds like mad over the last few days amid signs of an economic pickup. That eliminated all the price gains that had previously been racked up.
Two gunmen attacked a Garland, Texas convention center where the American Freedom Defense Initiative was hosting a controversial cartoon contest. They were shot dead by local police after opening fire and wounding a security guard.
The AFDI invited attendees to submit cartoons of the Prophet Muhammad, with a top prize of $10,000. That’s an affront to the Muslim religion, which generally prohibits images of the Prophet.
Baltimore returned to normal again on Sunday, with National Guard troops pulling out and the mayor eliminating the post-riot curfew previously in place.
Comic book movies continue to rack up huge box office results, with “Avengers: Age of Ultron” raking in $187.7 million in North America over the weekend. That’s the second-biggest domestic opening for a movie ever (behind the original Avengers movie that launched the Marvel series).
Disney (DIS, Weiss Ratings: A) owns the legendary comic firm. But it’s Disney’s “Star Wars: The Force Awakens” that could really blow the box office doors off when it’s released in December.
Will the calm last in Baltimore? Are you sick of all these comic book movies? Do you think sub-zero interest rates will return in Europe any time soon? Let me know over at the website.
Until next time,