Bolling: Head for the Exits on Integrated Oil

The reaction of these stocks to oil's move on Friday has Bolling selling.
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Everyone around me is asking one question about the oil shock we experienced last week: "What did I miss?"

Let me walk you through the week. The crude oil market was continuing a path lower for much of the time. For the first time in literally months, it was better to sell oil rallies than to buy the dips. That translates into a good environment for the shorts -- and I was one of them. I was very comfortable Monday and Tuesday. I was short crude oil on several platforms, and I was short futures and long

UltraShort Oil & Gas ProShares

(DUG) - Get Report

, the inverse of the oil price.

Nothing goes straight up or down, but when I sell a small "pawn" (short) as a test of the market's strength and it comes back intact, I get the notion that the short is the right position. And it was on Wednesday.

Then Thursday happened. It was a historic day. After trading on both sides of unchanged in the morning, the European Central Bank President Jean Claude Trichet threw everyone for a loss. He did what most expected and announced a "no change" to ECB interest rate policy. Then he did the unimaginable -- he opined that the next move for the ECB would likely be to raise their already lofty interest rates.

Most in the trading world thought, and rightly so, that the ECB should be looking to lower rates in order to stimulate a recessing Euro zone -- ask France, Germany and England how they feel about a rate hike anytime soon.

Well, that statement took the bid out from under the U.S. dollar and that pushed oil up a buck -- a measly dollar to the oil market was like a small short covering an early morning rally. I was not concerned -- every dollar rally over the last three days had been met with selling. "Pawn" selling proved the market was ready for the imminent correction down to $110 again.

Later in the day, I began hearing rumblings of news that might get released in the afternoon. I was getting a bit nervous, so I covered the futures short and kept the DUG (short oil) position. I hate to completely miss an event I anticipate, so the DUG stayed just in case there was no news.

Then I heard that Congressman Bart Stupak was announcing that he found, in essence, nothing illegal going on in the oil price rise. I knew I was going to take heat. I immediately got long oil against the short position in the ETF. I knew what this meant. For weeks we had been hearing about these Congressional hearings and investigations into possible manipulation in the oil price. I am sure there were many pension fund managers, hedge fund managers and investment bankers sitting anxiously on the sidelines waiting to jump in if there were only some way to be long oil without the potential stigma of the wrong end of the Congressional finger-pointing as to the "causer" of that $4 gallon of gas.

Congressman Stupak's comments sent shorts like mine scrambling for the same door as the aggressive fund managers looking for the opportunity they were waiting for. At the end of the day, oil shorts and new longs raised the price a staggering $5.49 per barrel -- a move never before seen.

That turned out to be just the tip of the iceberg. On Friday, oil started out unchanged in early morning trading (believe me when I tell you I watched all night). Ask any technical trader (most of my trading is supported with technical analysis -- chart analysis, volume, overbought/oversold indicators and more), when a market spikes and holds the spike level, assume it will trade higher.

Oil didn't disappoint.

It was boosted by an early morning call from a Morgan Stanley analyst that oil might touch $150 by July 4, of this year. That, combined with rumblings out of Israel that an attack on Iran may be forthcoming for failing to adhere to United Nations' resolutions regarding their uranium enrichment program, sent oil soaring. When the dust settled, oil was up $16 in the two sessions and 8.8% for the week.

One very interesting thing happened on the way to $139ish oil. The oil stocks reversed lower! After being up all day Friday,

Conoco Phillips

(COP) - Get Report

dropped 1.7%,

Exxon Mobil

(XOM) - Get Report

lost 2.8% and my favorite,

Chevron

(CVX) - Get Report

, shed 0.5%. Even the diverse

Energy Select SPDR ETF

(XLE) - Get Report

lost a noticeable 2%.

This weakness in a sector that should have been more resilient is telling for me. I am reluctant to be in big oil right now. There may be a few forces at work. It may have been a "sell anything that is up for the day" mentality by funds trying to cut into losses realized elsewhere. It could have been those seeing a truly weak economy as a foreshadow to November.

With the economy surely being campaign topic Numero Uno, Sen. Barack Obama may be emerging as the beneficiary in November. If you haven't been paying attention, the Senator has been forthcoming about how he plans to solve our oil crisis... with subsidies to the alternative energy world. The way he plans to raise those funds? Yep, windfall profit taxes to big, medium and small oil companies.

Either way, the energy shares selling-off with oil prices rising so dramatically is a tell for the trader in me. I am now firmly entrenched in the opinion that trading equity should be deployed away from big oil. There are many places where it should go, and in upcoming columns, I will address those areas, but integrated oil is not my favorite place right now.

For now, I am selling at least half of my big oil positions and waiting for other opportunities. I am selling 50% of my long-held positions in

BP

(BP) - Get Report

and ExxonMobil. I will maintain my whole position in Chevron, as I always maintained it as the best company on earth.

So, keep your energy powder dry for now -- there will be amazing opportunities that we will bring out over the next few weeks. In the meantime, let's move to the sidelines in integrated oil.

And as always

"Trade with your head, not over it."

At time of publication, Bolling was long CVX, DUG, BP and XOM. although holdings can change at any time.

Eric Bolling is a host on the new Fox Business Network. Bolling was one of the developers and original panelists (nicknamed "The Admiral") on CNBC's "Fast Money."

Bolling is an active trader specializing in commodities, resource trades and ETFs.

Bolling is a member of several exchanges including The New York Mercantile Exchange (NMX), The Intercontinental Exchange (ICE) and The Commodity Exchange of New York.

After spending 5 years on the Board of Directors at the NYMEX, he became a strategic adviser to that Board of Directors where he assisted in bringing the company (NMX) public. He has been included in Trader Monthly Top 100 in 2005 and 2006. Bolling was the recipient of the Maybach Man of the Year Award in 2007 for his contribution of philanthropy and willingness to de-mystify investing to Main Street.

Bolling graduated from Rollins College in Winter Park, Florida and was awarded a fellowship to Duke University. Bolling was an accomplished baseball player. He was drafted by the Pittsburgh Pirates where he played before his career was cut short due to injuries. He honors his baseball past by sporting the NYMEX trader badge, R.B.I.