Energy Stocks are Good, But Are They Good Right Now?

Winter has been warm, so summer should be scorching hot. We’ll need fuel to cool things down. [The Rude Awakening] March 17, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Energy Stocks are Good, But Are They Good Right Now? - With SIVB, Signature, and now Credit Suisse all getting bailed out, a recession is far more likely. - If that’s the case, crude oil, natural gas, and other energy sources will see another down leg. - In short, things will get worse - maybe far, far worse - before they get better. [Over 62 And Collect Social Security? Take Action Immediately!]( [Click here to learn more]( [If you’re over the age of 62 and currently collect Social Security, you need to prepare now](. Because Biden has given our country the worst inflation in decades – and many warn things will only get worse from here. Worse yet, the Social Security check you receive now may not keep pace with inflation… [Which is why, if you don’t act now, you could fall behind in the months ahead](. Is your retirement at immediate risk? [Click here now to get the simple, step-by-step actions to survive inflation](. [Click Here To Learn More]( [Sean Ring] SEAN RING Happy Friday! Micah, Pam, and I are driving to Nice, France, this weekend. (Believe it or not, the Rosé on the Riviera is supposed to be excellent. Allegedly, it doesn’t taste like grape drink!) I’ll sample it and report to you on Monday. But first things first. And that means energy and energy stocks. In our last Paradigm editorial meeting, our publisher Matt Insley asked a question that’s vexed me ever since. The question was, “We know and love energy stocks. But should we own them right now?” It’s one of those questions that gets to the heart of an investor’s biases. I say that because, heck, I’m as biased as the next man. I was sure we were going to freeze in our jammies this winter. Because it was going to be extremely cold, and the sanctions on Russian energy were shooting Europeans in the wallet. I was sure we wanted to own natural gas, oil, and their accompanying stocks because it was all so sensible. But last Friday night, it was 68F (20C) in Asti. Micah was running around with his jacket off. Micah’s friends’ parents, Pam, and I cracked open some Moretti beers in Piazza San Secondo (our town square) while watching our kids play hide-and-seek. When the sun finally set, it got cooler. But it wasn’t winter cold. It was midsummer cool. To be fair, it hasn’t been cold here since January. Sure, stocks were rallying hard. But energy and energy stocks were beginning to roll over. And that’s when I started thinking… maybe we won’t get that insane, sustained rally in energy. I didn’t want to believe it. Just like you, I was - and still am - massively long energy stocks in my retirement portfolio. So, this first quarter of 2023 has been a real kick in the goolies for me. And I imagine, for some Rude readers, as well. And not just us, but this entire business has been - and remains, funnily enough - massively pro-energy. So please understand if you lost money on energy stocks… you’re not alone! Be all that as it may, I thought I needed to hedge my opinion for the first time. Let me show you some examples of how I did that, not in my retirement portfolio, but as a trader. It’s important that you know you’re not the only one who may have been hit hard on energy stocks. Truthfully, the energy stocks in my retirement portfolio have, to quote Michael Lewis in Liar’s Poker, “gone down faster than an 18-year-old on prom night.” It’s painful, to be sure. Just know the below is what’s going on in my smaller trading account for your edification and learning, not my braggadocio. Three Stocks I Shorted In the Rude, I don't make single stock recommendations... As a daily writer, I concentrate on the big picture. But because the "big picture" story matters here - and the energy sector has been confusing to many readers - I need to share some recent trades I made... Just keep in mind these trades are “what I did in the recent past” examples, not recommendations. Devon Energy (DVN) Unbeknownst to me, good friend and smartest working analyst in the newsletter business, Dan Amoss, fundamentally loves this stock. Another oil and gas analyst friend fundamentally hates this stock. So, when that friend said, “It’s only a matter of time before DVN gets crushed, I looked at the charts. Here’s what I saw on January 11 of this year: [SJN] There’s no name for this chart pattern, but my eyes widen when I see it. We have a double top around $72.50, followed by a near-death cross (the 50-day MA crossing below the 200-day MA). The actual price was hovering right on the 200-day MA. I gambled on a long shot by buying the DVN Jul 50 puts on January 11 for $3.30. I thought that it surely could get below $50 if my friend were correct. I bet bigger than usual by buying six puts in total. Now understand this: I’ve got nothing against DVN as a company. I just hated the warm weather, the oil price falling, and this chart. Let’s fast forward to Wednesday (2 days ago). Here’s the chart: [SJN] After an initial rally from $61 to $65 which had my puts losing, DVN cratered. Those puts closed above $8 yesterday. This position is still open. I’m being a bit greedy, but I’d like to see them get to $11 or so. We’ll see. EOG Resources, Inc. Later, I was looking to add to my energy shorts. Again, I have nothing against EOG, but I didn’t like the stock movement for the same reasons I didn’t like DVN. What I liked even less were the two massive red (down) candles within a couple of months of each other. Somebody somewhere was trying to dump this stock. When that second huge red candle pierced the 200-day MA, I thought it might be game over. So, on February 17, I bought 2 Apr 114 puts for $6.00. It was a smaller bet than DVN because I was less sure my surmises would come to fruition in time for the shorter expiry. [SJN] Luckily for me, EOG followed the energy complex straight down. Yesterday, I closed out 1 of the puts for a 50% gain and 1 for a 100% gain. (My friend, colleague, and options expert Alan Knuckman taught me that trick. It’s good for a 75% gain overall.) [SJN] [March 20th Announcement - Your Shot at Big Gains?]( On March 20 at 10 AM Eastern, one tiny stock is going to make an announcement that could send shockwaves throughout the market. And if you aren’t on the right side of what happens next, you’ll regret it forever. [Click here now for the details.]( [Click Here To Learn More]( ConocoPhilips Another company I’ve got nothing against, COP’s stock chart looked exactly like EOG’s. So, I thought I’d buy 2 Apr COP 100 puts @ 4.29. [SJN] This, too, paid off a nice 75% gain: [SJN] COP got crushed for the same reasons EOG and DVN did. Again, these aren’t bad companies. But as you look at the chart, you can see the “boom” clearly preceding the “bust.” Please understand these small trading wins in no way make up for the losses in my retirement portfolio. But I’ve got a few more years to make them up. (But certainly not as many as I’d like.) Will these stocks come back? I’m sure they will. And they may do so just in time for summer. But I’m pretty sure right now isn’t the time to buy energy stocks. They’re all getting slammed. Three More Charts Showing Energy Nosediving Right Now First, let’s visit the XLE. The XLE is the S&P energy sector index. If you look at the chart below, it makes a compelling case that this energy rally has concluded and that we’re on our way down. The MACD on the XLE is showing the greatest overbought reading ever. From [Investopedia]( Moving average convergence/divergence (MACD, or MAC-D) is a trend-following momentum indicator that shows the relationship between two exponential moving averages (EMAs) of a security’s price. The MACD line is calculated by subtracting the 26-period EMA from the 12-period EMA. The result of that calculation is the MACD line. A nine-day EMA of the MACD line is called the signal line, which is then plotted on top of the MACD line and can function as a trigger for buy or sell signals. Traders may buy the security when the MACD line crosses above the signal line and sell—or short—the security when the MACD line crosses below the signal line. MACD indicators can be interpreted in several ways, but the more common methods are crossovers, divergences, and rapid rises/falls. Finally, the XLE has been getting smashed compared to the overall SPX. None of those signals is bullish for the energy sector. [SJN] Source: @daChartLife via [The Chart Report]( Next, J.C. Parets of All-Star Charts fame shows how crude oil futures have resolved their triangle pattern to the downside. That’s not unusual at all, to be sure. But now crude futures are below a level with much overhead resistance. It’ll be challenging to get back above that line for a while. [SJN] Source: @allstarcharts via [The Chart Report]( Ian McMillan shows the same chart as J.C., but it’s his comment that caught my eye. I’d even ask, "Is this oil chart demonstrating the demand destruction the Fed was trying to cause with its rate hikes?” [SJN] Source: @the_chart_life via [The Chart Report]( Wrap Up I would answer the question I posed in this Rude’s title by saying, “No.” The balance of probabilities shows there’s more downside to the energy story. And that it’ll probably get much worse before it gets better. But I must stress these aren’t bad companies, just bad timing. It’s hard to believe only a few months ago, Germans were googling “firewood” to see how they could heat their houses. Now, we’ve got our shades on and our jackets off in mid-March. But keep your chin up and your head clear. More opportunities are coming our way, but we need to see them. And while we wait for energy stocks to rebound, [buck up on your gold knowledge by reading this]( if you haven’t already. Have a wonderful weekend! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening P.S. Earlier I told you I don't make single stock recommendations in the Rude, but I'm here to serve you. There's potential for me to start a new, trade-focused letter. But I wouldn’t think of doing that without asking you first. So… would you be interested? Let me know either way (yes or no) by writing to feedback@rudeawakening.info. Thanks for taking the time. It’s a YUGE help! In Case You Missed It… The Moral Consequences of Hyper-Inflation Have Come Home to Roost [Sean Ring] SEAN RING Good Morning Reader, Happy Thursday from beautiful Northern Italy! There are times I wish I was unaware of what’s going on in the world. Especially since last Sunday. I won’t lie. The thought of Meghan and her ginger nut Prince becoming paupers lit me up like a Christmas tree. I was so excited to use this meme. It’s devastating that it’s no longer valid. It would’ve been so delicious. Ironic, even. And I lived in England long enough to understand irony. What happened with respect to SIVB and Signature Bank was idiotic economically. But in a much more important and real sense, it was immoral. In this Morning Reckoning, I’m putting in print part of one of my favorite speeches by a professor I wish I knew better. I’m No Priest, But… Professor Joseph Salerno of the Mises Institute gave a speech years ago about the moral breakdown of society in the face of inflation called “[Easy Money, Easy Morals]( I can’t encourage you enough to listen to the whole thing. It’s only 30 minutes, but if you play it at 2x speed, you’ll get done in 15 and lose none of the value. Professor Salerno gives a great account of Weimar Germany, which eerily mirrors what America is going through right now. Sure, there’s no hyperinflation yet. But the moral consequences have long been evident. Professor Salerno said: “At some point, people lose confidence in the value of the money. The price continues to rise at ever rapid rates, even more quickly than the government can print money up. So even in the middle of this massive inflation, people experienced a shortage of money. They didn't have enough money as much as they needed to buy goods and services. It destroyed people's bank deposits and pensions. If someone had a pre-war pension of 200 marks per month, which was very comfortable, they couldn't even buy a meal by 1920. Workers didn't want to hold money for a week. So they began to demand to get paid three times a week, and then every day, and then three times a day, and had their fiancés and wives at the factory gates to get the new money, rush out to buy things as quickly as possible. Teachers and professors, who were traditionally paid monthly in Germany quit their jobs, because if you had to wait a month for your income, that income was worth 1,000,000th of what it was worth prior. So they quit their jobs and became taxi drivers and waiters. Farmers refused to pay you to sell you an egg, even for a whole wheelbarrow full of marks. Those people that were able to get the new marks as they were printed up by the banks were the ones that benefited. They got it before the prices rose. And they spent it… they bought up hotels, they bought up land. You had so-called joint ventures in Germany, which put together coals, banks, hotels, electricity. These were not very productive and, and in fact, collapsed. They were put together by paper money. On the other hand, this was based on the looting of the savings of the people on pensions who had no access to this new money right away. The middle class were getting paid every two weeks or every month. So you had this nouveau riche, these newly rich that began to rush out and, and spend the new money, because they knew it was going to depreciate, on ostentatious examples of conspicuous consumption. Who were the victims? The middle class, the small businesses, the pensioners… they were all wiped out. And what about the effects on moral values? Obviously, it no longer paid to be thrifty and to save for your future and your child's future. So, thrift, such an important value in the capitalist economy, went by the board. People no longer carefully planned their investments. They simply bought anything because they felt that the prices were going up the next day. So people no longer look to the future. They suddenly became very interested in immediate gratification to get anything and get it now. Productive work was discouraged because most people had left the factories and spent all their time hunting for bargains, trying to get rid of their marks. Even sexual morals changed. Women's dowries were wiped out. Now, you laugh about that, but dowry had a very important function in the old culture. It was a way of signaling to a prospective suitor that the woman's family was virtuous, had thrift, they worked hard, had family commitments to one another. Now, the women became discouraged of ever accumulating dowries in the future and ran off with their boyfriends. And the term boyfriend was not used in polite society in Germany in the 1920s! Prior to the hyperinflation, it was a scandal for an unmarried middle-class girl to have a “boyfriend.” Everybody sought after this ostentation, this luxury. And that replaced the goal of having a good and solid family name… Of being sober in your investments. And finally, the people who were looked up to are the unscrupulous gamblers and profiteers who now got to the top of the social structure, where the old families and the old wealthy who worked hard and were good examples to the rest of the populace, were now at the bottom. Now, there is a direct link between inflation and the breakdown of morality, an even more direct link. Let me just explain it in the following way. By bringing about a thoroughgoing social revolution, it really does destroy the middle class and the productive rich. But by destroying money itself, it destroys everyone's ability to plan for the future and leaves them no recourse, but to seek immediate gratification. Moreover, whether we like it or not, men and women live in a world where they cannot live or flourish physically and spiritually without property. But remember, property is not merely a collection of material things. It refers to those things that are judged valuable in serving human wants and desires. But in the modern world, you can never know what the value of property is in a specialized economy of mass production unless you know its money value. So in a real sense, valuable property is an extension and a definition of an individual's very personality.” [URGENT! The Truth About Biden’s Role In the Nord Stream Attack?]( [Click here to learn more]( This presentation has SHOCKING evidence about who ordered the attack on Russia's Nord Stream pipeline... And that we KNEW it would cost Americans BIG. [View it here now.]( [Click Here To Learn More]( Oh, The Realization I know what you were doing while you read that speech. In your head, you thought about your dwindling purchasing power. And that’s despite having more money in your bank account than you may have ever had before. You now see why smart people have abandoned noble causes (like teaching) for worthless, but higher paying roles like “influencer.” You visualized today’s nouveau riche, with their Birkin bags and Cartier bracelets. Fear of Missing Out (FOMO) is now a hasty, but understandable way of investing in cryptocurrencies and NFTs. Broke, but shapely young women getting their funbags out on Only Fans suddenly makes perfect economic sense. And those who merely show a bit of skin on Instagram are saints by comparison. And worst of all, you know exactly who those unscrupulous gamblers and profiteers are. They’re people you formerly admired and respected. Venture capitalists, investment bankers, corporate lawyers, former House speakers, and now, entrepreneurs with the right bank accounts. But don’t take my word, or even the good professor’s. Have a look at this: [tweet] This era’s story – like Weimar Germany’s – is all about inflation and the way it distorts incentives. Before you go, let me disabuse you of one notion. You can’t save everyone. We’re far past that point. But you can save yourself, as my colleagues and I have written many times before. Concentrate on that. Head to the [Daily Reckoning]( to catch up on the ways to get ahead of what’s coming. And if you didn’t read the Rude this morning, my good friend and colleague Byron King talks to you about real deposit insurance: the rock-solid kind. He’ll show you why “pounds in the ground” are far superior to “Biden Bucks.” Until next week, take care. Let me know what you think of these recent events and how they’re affecting you and your faith in the system by emailing me [here](mailto:feedback@dailyreckoning.com), I’d love to hear your thoughts. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@rudeawakening.info. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized financial advice. We allow the editors of our publications to recommend securities that they own themselves. However, our policy prohibits editors from exiting a personal trade while the recommendation to subscribers is open. In no circumstance may an editor sell a security before subscribers have a fair opportunity to exit. The length of time an editor must wait after subscribers have been advised to exit a play depends on the type of publication. All other employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. Please read our [Privacy Statement.]( If you are having trouble receiving your Rude Awakening subscription, you can ensure its arrival in your mailbox by [whitelisting Rude Awakening.](