Beware the Speeding Train Effect in Oil Stocks

Speeding trains hurt. No doubt. But the indiscriminate nature of the selloff is just plain silly.

National Oilwell Varco (NOV - commentary - Cramer's Take) is down huge despite the fact that its order books are filled for years and years, as are Transocean's (RIG - commentary - Cramer's Take) books for that matter.

But then again, Transocean is nowhere near as low as it fell in the January clocking, to the teens. I like National Oilwell Varco because it has taken out its January low, one of the few quality names of the group that has actually taken out its January low.

I think that people have to recognize the levers here: every time we have two down days, oil traders go nuts and panic and you begin to hear talk of $80-a-barrel oil. Then no one buys them. No one at all.

Then you get the gang tackle from the oil service exchange-traded funds and the put-buying and call-selling in the Oil Service HOLDRs Trust (OIH - commentary - Cramer's Take) to try to take that thing down -- maybe to $165, which is where the puts seem to indicate -- and you get unnatural pressure that freaks people out and makes them think it must be over. Put in a little deleveraging -- hedge funds having to reduce margin and sell everything that's not nailed down -- and you get another nail in the alleged coffin.

And then you get some stability, the stocks charge up and everyone buys 'em higher.

The speeding train problem.

I remain committed to my $125 oil target. I am not shifting it because the "stocks" are indicating lower. The stocks haven't indicated much at all other than which hedge fund has charged in last.

That's no way to invest.

At the time of publication, Cramer was long BP and ConocoPhillips.

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