Conventional wisdom would have it that 2015 was a disastrous year for oil and other energy industry related stocks. Certainly for those that have a long term “buy and hold” mentality that is true, but for those of us who trade more actively the story is a little different. What traders need is movement, regardless of direction. In fact a market that follows a strong trend but bounces around a bit as it does so is just about perfect from a trading perspective and that certainly describes oil and natural gas futures this year. As a result stocks in the energy sector have tended to follow the same pattern, resulting in a lot of opportunity for profit.
The big picture, though, has been pretty dismal. Most commentators (and I will freely admit that I was in that group) thought at the start of 2015 that the worst of the drop in oil was over, and expected the strong support in the low 40s to hold. That looked like a decent prediction early in the year as futures bounced off of that level and recovered to above $60/Barrel, but then rapidly increasing supply and signs of weakness in global demand caused another push down.
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This sustained weakness in oil, as well as a late year collapse in natural gas, put enormous pressure on many small producers. Most soldiered on though, in the belief that a recovery was imminent and that cash flow from very low and even negative margin production was better than shutting down. That, predictably…