Trade Alert: Energy Again
Portfolio Armor's top names keep surfacing North American energy names. Maybe the algorithm knows something we don't about where oil is headed.
Deadlines And Damage
A couple of weeks ago, when we placed a bearish bet against oil, the deadline on the horizon was Trump’s threatened “Bridges and Powerplants” day.
Now we’re a couple of days away from a different deadline: the end of the two-week ceasefire that replaced it.
Our bet against oil from a couple of weeks ago is in the black now. We entered it at $0.85 per contract, and based on current midpoints, it’s worth about $2.50 now. So the market has, to some extent, moved in the direction we expected.
What If The Damage Outlasts The War?
I still expect the war to end soon, though we may see some escalation first. But even if the war ends soon, the impact on oil supply may last longer than the war itself. Reuters reported this week that U.S. crude and fuel exports have surged to record highs as Middle Eastern exports have been disrupted, and Citi said global oil stocks could still fall sharply even if the ceasefire is extended because of ramp-up delays, logistical problems, and infrastructure damage.
That may be one way to interpret the kinds of names Portfolio Armor has been surfacing lately.
What Portfolio Armor May Be Seeing
Of the ten names in Monday night’s Top Ten, seven would generally benefit from higher oil or firmer energy prices, one would likely benefit from lower oil through cheaper feedstocks, and two are more ambiguous. That’s interesting, because it suggests the algorithm may not be making a simple one-way bet on oil. It may instead be seeing a broader period of energy dislocation, where the winners are not just producers, but also companies affected by downstream pricing and feedstock costs.
That ambiguity is part of what makes the list interesting. Some of these names look like straightforward “higher oil” expressions. Others look more like bets that second-order effects from the war will linger even after the shooting stops.
How We’re Trading It
Today’s trades fit that mold. One is a more direct North American energy name. The other is a chemicals name with energy and feedstock exposure. We’re not simply buying the stocks and hoping for a huge move. As always, we’re structuring the trades so we can make money with a relatively modest upward move in the underlying while keeping our downside defined.
And while we don’t know what these names will do going forward, we do know that, historically, Portfolio Armor’s Top Names have tended to outperform significantly on average since we started this Substack in late 2022: over the next six months, they’ve averaged returns of 17.28%, versus 9.74% for the SPDR S&P 500 Trust (SPY 0.00%↑) over 147 rolling 6-month periods. That’s one reason it makes sense to pay attention when the algorithm keeps surfacing the same broad theme.
Today’s First Top Names Trade
Energy / supply disruption theme
