It was an awful week for oil-related plays as oil's price continued to drop and one energy company after another, including the titans Exxon (XOM) and Chevron (CVX), failed to provide investors much in the way of reassurance. This calamity was quite a contrast to the much higher optimism from earnings just three months ago.
The all-time low on the United States Oil ETF (USO) is already receiving a major challenge as oil prices plunge anew
The all-time low on the United States Oil ETF (USO) is receiving a major challenge thanks to the renewed plunge in the price of oil. Surprisingly, the CBOE Crude Oil Volatility Index (OVX), an index built off USO, is nowhere near the highs it achieved when USO was last cratering to these levels. I am interpreting this as a sign that the market currently believes USO has little additional downside. Of course, the market could be very wrong with so many uncertainties ahead on the demand (think China) and supply side of oil (think inventories, geopolitics, and monetary policy). Although OVX was not as high as I would have liked, I still started into the USO rangebound trade in place of my earlier simple trading scenarios for USO. Given the market's reaction to the onslaught of bad news from oil-related companies, I am bracing myself for at least one more wave of panicked exits from oil ahead.
Linn Energy (LINE) delivered a harsh dose of reality for investors in high-yielding oil and natural gas Master Limited Partnerships (MLPs). During its earnings announcement on Thursday, July 30, LINE announced it would suspend its dividend entirely in order to pay down debt. In the long-run, this decision is an extremely smart swap, but right now, panic rules.
The post-earnings selling in Linn Energy (LINE) has yet to let up
Incredibly, LINE has lost 71% just in the last three months. For high-yield investors, this is a nightmare scenario that completely blows up years of patient dividend collection and reinvestment. I have duly noted that perhaps, just perhaps, the market is starting to tell us that there is truly nowhere to hide from low yields (and low returns?!?)
