What's the deal w/oil stocks?

Discussion in 'Stocks' started by Cdntrader, Jan 18, 2007.

  1. Everyday of the past week oil has dropped a buck or 2 but the XLE ticks up every day.

    What am I missing? Any oil experts out there care to enlighten me?

    Just curious:)
  2. Could it be the buybacks?

    Oil stocks are acting like they're selling IPods, not oil. This should change soon.
  3. For starters, investigate the XOM / S&P500/ Dow Jones Industrials / Crude oil correlation.

  4. - Oil related stocks do not work under the premise that the price of oil will be much lower in the future. Exxon, for example, operates under the premise that oil is at $40 per barrel and uses that assumption. Everyone in the oil industry knows how the price of oil fluctuates and carefully grooms their accounting to take into consideration these fluctations.

    - The XLE chart has been traded in a range since mid-2005 when oil was at about the price it is right now. That range will be difficult to change. Traders are used to this general range for oil stocks


    - Even if oil goes to $15 per barrel, the demand scenario is still there. They will still need to pump a certain amount per day. They will still need to explore off-shore. Oil services will always be needed.

    - The lower price of oil was due to hedge funds dumping. This is a temporary event and the demand scenario is still there.

    - The oil stocks have been selling off since June of 2006 with a few bounces here and there. The greatest amount of selling occurred recently and down to oversold levels. The street has already priced in this event months before it even happened.

    I say to use the bullish percent indicator for the energy sector. When this indicator bottoms and then rises 6%, this will be a clear signal to get in.