Investing in the Oil Services Sector With ETFs
The Oil Services sector is about to enter its period of seasonal strength. What are prospects this year?
According to EquityClock.com, the oil services sector has a period of seasonal strength from January 15th to May 9th. The trade has been profitable in 18 of the past 21 periods. Average return per period is 17.0 percent.
Seasonality is influenced by the traditional increase in crude oil and refined product prices during the February to May period as well as an increase in demand for rigs during the winter drilling season.
Prospects are more promising than usual in 2012. The industry recently predicted that spending on oil services will increase by 9.0 percent in 2012. Gains will come partially from a ramping up of horizontal drilling in North America. Added to demand is development of offshore fields in Brazil and the South China Sea and a recovery of oil producing facilities in Iraq. Higher crude oil prices are stimulating demand. Crude oil prices on a year-over-year basis have climbed from $90 in January 2011 to over $100 per barrel. Events in Iran could boost crude oil prices further.
Strong fourth quarter earnings also will help the group. The top 10 companies are expected to record a 16.5 percent gain on a year-over-year basis. The top 10 companies are Baker Hughes (BHI), Cameron International(CAM), Diamond Offshore Drilling (DO), Halliburton, Noble Corp. (NE), Schlumberger (SLB), TransOcean (RIG), National Oilwell Varco (NOV), Weatherford International (WFT) and Precision Drilling (PD).
On the charts, the sector is not set up for the seasonal trade yet. The Philadelphia Oil Services Index (OSX) at 223.28 bottomed early in October at 174.66, quickly moved to 244.54 at the beginning of November and subsequently moved sideways. A move above resistance completes a bullish reversal head and shoulders pattern, a possibility during the 2012 period of seasonal strength. The Index remains below its 50 and 200 day moving averages. Strength relative to the S&P 500 Index has been slightly positive since the beginning of October. Short term momentum indicators currently are overbought. Preferred strategy is to accumulate equities and related Exchange Traded Funds on weakness closer to short term support at 204.59 after the sector has entered into its period of seasonal strength.
Exchange Traded Funds that track the Oil Equipment and Services sector include Oil Services HOLDRS (OIH $117.30), Dynamic Oil and Gas Services (PXJ $20.75) and Oil & Gas Equipment and Services SPDRs (XES $35.60). A word of caution on Oil Services HOLDRS! The trust is progressing through a restructuring. As a result, liquidity has significantly declined recently.
About Don Vialoux
Don Vialoux has 37 years of experience in the Investment Industry. He is a past president of the Canadian Society of Technical Analysts (www.csta.org) and a former technical analyst at RBC Investments. Don earned his Chartered Market Technician (CMT) designation from the Market Technician Association in 1995. His CMT paper entitled “Seasonality in Canadian Equity Markets” was published in the Spring-Summer 1996 edition of the MTA Journal. Don also has extensive experience with Exchange Traded Funds (also know as Index Participation Units) as well as conservative option strategies. In 1990 he wrote a report that was released in the International Federation of Technical Analyst Journal entitled “Profiting from a Combination of Technical and Fundamental Analysis”. The report introduced ” The Eight Phases of the Stock Market Cycle”, an investment concept that continues to identify profitable entry and exit points for North American equity markets. He is currently a member of the Toronto Society of Fundamental Analyst’s Derivatives Committee. Now he is the author of a daily letter on equity markets available free on the internet. The reports can be accessed daily right here at www.dvtechtalk.com.
Impossible! That’s what institutional investors say about “Timing the Market”. Mr. Vialoux will explain that, indeed, it can be done with the appropriate analysis. He also will explain why timing the market will be important during the next decade. Buy and Hold strategies are not working anymore; Investors are looking for alternatives. Mr. Vialoux will demonstrate four techniques that can be used to time intermediate stock market swings lasting 5-15 months. The preferred investment vehicles for investing in intermediate stock market swings are Exchange Traded Funds.