The time has come for an end of the year trading round-up - how we did with actual trades and what we can learn for our energy sector trading in 2016 and beyond. What immediately strikes me from the last year of trading is how deadly accurate I was with the macro energy environment starting in early March through December, yet how that refused to translate into what should have been a banner trading year.
We've got to figure out why.
Well, let's look at the macro ideas I was using, and the trades that followed.
My book, Shale Boom, Shale Bust was mostly completed in early 2015 although came for sale in June and the macro outlook for oil and oil stocks expressed there turned out to be dead on the mark - I predicted a three stage progression of the oil bust, with protracted, low oil prices that don't even begin to recover until 2Q16 at the earliest. I foresaw the coming distress and bankruptcies of the marginal U.S. producers, the collapse in capex and share price of the survivors and still believe that it will take a real and large production collapse to end the current bust.
With that thesis in mind, let's look at what I did.
Early in the year, I took advantage of a continuing production glut and dropping price to trade some of the refiners, making some gains - but abandoned the group when I thought they had gotten too pricey and WTI/Brent spreads began to collapse. While I booked profits, there was more to be made in these.
I refused to…
The time has come for an end of the year trading round-up - how we did with actual trades and what we can learn for our energy sector trading in 2016 and beyond. What immediately strikes me from the last year of trading is how deadly accurate I was with the macro energy environment starting in early March through December, yet how that refused to translate into what should have been a banner trading year.
We've got to figure out why.
Well, let's look at the macro ideas I was using, and the trades that followed.
My book, Shale Boom, Shale Bust was mostly completed in early 2015 although came for sale in June and the macro outlook for oil and oil stocks expressed there turned out to be dead on the mark - I predicted a three stage progression of the oil bust, with protracted, low oil prices that don't even begin to recover until 2Q16 at the earliest. I foresaw the coming distress and bankruptcies of the marginal U.S. producers, the collapse in capex and share price of the survivors and still believe that it will take a real and large production collapse to end the current bust.
With that thesis in mind, let's look at what I did.
Early in the year, I took advantage of a continuing production glut and dropping price to trade some of the refiners, making some gains - but abandoned the group when I thought they had gotten too pricey and WTI/Brent spreads began to collapse. While I booked profits, there was more to be made in these.
I refused to short-sell any stocks as it has never been my way - but short selling some of the 'doomed' energy companies I identified was one of the best opportunities in the energy space in 2015. Companies I recognized as in deep trouble included Northern Oil and Gas (NOG), Halcon (HK), Sandridge (SD), Goodrich Petroleum (GDP), Oasis (OAS), American Eagle (AMZG), Magnum Hunter (MHR) and Chesapeake (CHK) - instead of selling any of these (two of which have declared bankruptcy already) I actually tried to buy two of them for bounces, one of which turned out disastrously.
I caught several solid bounces in majors and other US E&P's, trading around positions in Hess (HES), EOG Resources (EOG), Cimarex (XEC) and Total (TOT). These were the four stocks that were on my screens constantly, although I traded several others.
As in my career on the floor, I much preferred being long oil to being short, and although I was having a decent year trading oil, I destroyed it almost completely last month by again believing that the lack of a production cut at the OPEC meetings was already priced into the market and the historic short positions would translate into an oil bounce not unlike the one in August. Now at $35/barrel, that obviously didn't materialize and stops took me out of that losing position at $38, saving what little was left of my 2015 oil profits.
Then there was the Kinder Morgan disaster - losing 26% in three days.
One major trading theme from the year emerges - in 2015, I forgot some of the golden rules of trading:
The trend is your friend
Don't try to catch a falling knife
Cut losses and let winners run
Keeping these simple thoughts in mind would have much improved my trading year and rewarded my accurate outlook on oil and oil stocks.
For 2016, I resolve to be better - and look for opportunities that are with trends even if they are uncomfortable - like put-buying of stocks I dislike, or outright shorting.
You will likely see more selling recommendations in companies I think will remain challenged, less aggressive buying of even treasured E&P stocks unless they have the wind (or at least a breeze) at their backs - and I'll probably go back to the refiners, putting them back on my daily screens.
Because my macro outlook still says that E&P will struggle, production will drop ever so slowly and oil prices will remain depressed for at least another several quarters.
And that leaves us in the energy space with still little to recommend - and another careful and difficult year of trading ahead.
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