One of the toughest things to do as a trader is nothing. After all, our livelihoods are derived from making trades, not avoiding them. And, having come from a commodity background, doing absolutely nothing was rarely necessary - if you don't like a market, you can sell it and go short just as easily as long.
Such conveniences do not exist as easily when you're investing in stocks.
And such is the case I see now in the energy markets, where oil prices are ahead of their likely 'correct' prices in the cycle while oil stocks continue to gravitate back towards equally 'correct' valuations based not only upon the underlying prices of oil and gas, but also the, as I see it, hyper-inflated valuations of all stock indexes right now.
Still, I am exceedingly bullish on oil stocks through 2017, and that leads me to two very strong strategies as this market settles over the next few weeks - first, slowly re-initiating positions in E+P companies that I lessened towards the end of 2016 as values again appear and second, finding more conservative places to 'park' investment capital as these other core investment opportunities appear.
In my last column, I tried to outline several infrastructure stocks that would serve very well as market 'placeholders' for the next several weeks. Now, let's try to find some other values that might appear in oil and gas stocks. But, even as I mention some of these possibilities, remember we are guided as doctors by the Hippocratic oath - "first, do no harm". That means that we will move slowly and with care, remaining underexposed and long cash.
I believe that a core holding in oil E+P's now must contain at least one Permian focused player. Recent deals from Exxon-Mobil, Noble Energy and Anadarko highlight the fast gold rush that continues to center on this hottest of shale plays in Western Texas. Even though many of these deals smell of hype, the area continues to attract most of the M&A money and therefore will equally attract the strongest stock action. I have my favorites, including Cimarex and the aforementioned Anadarko, but other options certainly exist, including Pioneer Natural Resources (PXD), Concho (CXO), Diamondback (FANG), Parsley Energy (PE) and Callon Petroleum (CPE).
Similarly, Chevron has a preferred place for me among US supermajors currently because of their premiere Permian presence.
This is only a first step in assembling a long-term energy position. Notice that I'm not ready to attempt to find equal value in oil services, off-shore producers or natural gas. Not yet.
Small moves will suffice for the next several weeks. If the trend has truly changed and oil and gas are only beginning their multi-year recovery cycles, then we have plenty of time.
And if you cannot make small moves, then my advice is the toughest of all: do nothing.
Dan Dicker is a 25 year veteran of the New York Mercantile Exchange where he traded crude oil, natural gas, unleaded gasoline and heating oil… More