July-Time to buy energy stocks, at least that is what this analyst with an excellent track record is saying. He notes that prices usually rise from July to October. This year the rally started in June probably due to those recent acquisitions and continued high oil prices:
NEW YORK (Dow Jones)--Last summer, just weeks before Hurricane Katrina slammed into the U.S. Gulf Coast, Walter Zimmerman made a bold prediction: the price of natural gas would rise 50% and set record highs in the fourth quarter.
Zimmerman, an analyst with the brokerage and consulting firm United Energy, didn't justify his call by citing gas storage levels, economic growth or even assumptions about hurricane activity. Zimmerman is a technician, a species of analyst who relies exclusively on past price patterns to foresee future movements, while ignoring the fundamentals of supply and demand that most analysts use to predict the market.
"I don't make the news," Zimmerman, 55, said recently from his small office in Jersey City, N.J. "But this system was saying something will happen that's going to cause a major panic."
Zimmerman had told his clients on Aug. 16 that gas prices would peak at $15.27 in the fourth quarter.
Moods Move Markets
Despite the uncanny accuracy of his forecast, Zimmerman says his system doesn't predict hurricanes or any other event. What it does predict, he claims, is the market's mood, which can swing wildly between hope and fear, often ignoring weather and other fundamental indicators.
'Patterns Repeat Themselves'
Zimmerman's analysis of the energy markets begins with the observation that the price of most energy commodities has a distinct seasonal trend. Since the early 1980s, prices have tended to rally between December and late April, sink until July, rally until October, and fall until December. The exact dates of the peaks and troughs vary depending on the specific energy commodity.
Overlaying these seasonal variations are multi-year time cycles that
Zimmerman says skew the impact of the seasons. For example, he posits the existence of eight-year and 13-year cycles that govern the crude oil and petroleum product markets.
Currently, the eight-year and 13-year cycles are in a rare moment where they're peaking together - an event that happens only once every 38 years - leading to an environment that's maximum bullish and should last until the beginning of November, Zimmerman said.
"Fundamentally, prices should not be this high," Zimmerman said. "The fact is, these markets are not rational. They're emotional and right now they're swimming in a sea of fear."
Zimmerman sees the potential for a super-spike in crude and petroleum product prices in late October. Only starting in 2007 will the fear that's saturated the oil market begin to dissipate, he said.
"It won't be safe to not be long until we're past that October window," he said.
