Thursday, December 11, 2008

Oil Trade Working Well

On Monday, I pointed out an opportunity for a short-term oil trade. Its working out pretty well so far, as crude oil has moved higher all week from around $40 to current levels of $47.

The main reason for the trade, which is OPEC's likely production cut next week, has been noticed by many traders. In fact, the strength in these stocks suggest that it might be worth selling the hype on this trade. I'm thinking this mainly because there are very few compelling reasons to buy stocks or sectors right now, and lots of people are looking at this trade. I do believe OPEC will make a major cut in order to increase oil prices, but if it doesn't exceed expectations, which are now heightening, these stocks could sell off again. Its a situation to monitor closely. If you're in on this trade, I'd probably use a trailing stop. That way if the news is good, you still own the stock, but if it disappoints, you can lock in some profit.

Here's the closing prices and current prices of stocks mentioned Monday:

National Oilwell Varco (NOV): Mon: $22.37 Current: $27.31
Schlumberger (SLB): Mon: $40.78 Current: $43.93
Exxon Mobil (XOM): Mon: $79.60 Current: $81.70
Noble (NE): Mon: $23.51 Current: $27.00
Transocean (RIG): Mon: $54.25 Current: $61.45

Disclosure: Long NOV

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