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If you’ve ever tried trading individual oil stocks and felt like you were guessing, you’re not crazy.
Here’s what I’ve learned: individual energy stocks don’t move the way you’d expect them to based on what crude oil is doing. You’d think they would, right? Oil goes up, oil stocks go up. Simple.
But that’s not how it works.
Companies like Chevron (CVX) and Phillips 66 (PSX) can move in completely different directions — even when crude is falling. One’s up, one’s down. It all depends on their sales, production efficiency, management decisions and whether they’re actually making money. You have to tune in to their earnings, production reports and all that stuff if you want to trade them properly.
That’s a lot of homework for a directional trade on energy.
The Cleaner Way to Play Energy
I like the ETFs — specifically United States Oil Fund (USO) and S&P Oil & Gas Exploration & Production (XOP). They’re easier to trade because they give you clean exposure to the sector without the company-specific noise.
USO tracks crude oil directly. It looks like the crude oil chart because it moves with it so well. If you want to trade gasoline instead, United States Gasoline Fund (UGA) tracks unleaded gasoline. And XOP gives you broader energy sector exposure.
No guessing which company is outperforming. No digging through earnings. Just straightforward sector exposure.
One More Thing About Energy and Utilities
Here’s something that used to trip me up: utilities and energy stocks often move in opposite directions. A lot of times you’ll see utilities going up while energy names are going down and vice versa.
They’re different animals. It’s something to keep your ear to the ground on if you’re trading either sector.
The bottom line? When the overall oil industry is going down, you’ll still find some individual stocks going up. That inconsistency makes stock picking in energy harder than it needs to be.
Stick with the ETFs. They move more predictably, and you’re not betting on whether management is doing a good job. You’re just trading the direction of the commodity or the sector.
That’s a trade I can get comfortable with.
Geof Smith
Geof Smith Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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