A month and a half ago, I wrote about an interesting "tell" that I was getting from the oil markets. I say market(s) because I noticed a distinct diversion that day. Oil prices had just exploded.

The prior Thursday and Friday (June 5-6), oil ran up $17 a barrel. I have been trading commodities for 22 years, and I can say I have seen many things, but never anything like that before.

So with oil trading up massively those two days, I was expecting oil companies to show some real upside on the following Monday. The "tell" for me came when the energy sector was one of the weakest during this run-up in its primary product.

I wrote on June 9 about

Exxon Mobil

(XOM) - Get Report

,

BP

(BP) - Get Report

,

Chevron

(CVX) - Get Report

and

ConocoPhillips

(COP) - Get Report

.

I suggested they were weak in a very bullish oil environment, which usually means it is time to sell weakness. Mark Fisher, my mentor, has a name for that kind of market reaction: "good news, bad action."

The good news for the oil companies was strong oil prices. The fact that the energy sector traded lower that day represented the "bad action" side of the rule.

I will always recommend selling those good news, bad actors in this column. It is not a foolproof rule, but sticking by it helps cut losses in stocks that aren't performing, even when given the opportunity to do so.

I suggested selling integrated oil and waiting for a pullback. Boy, did we ever get that pullback.

  • ConocoPhillips was at $95 and now it's $81.95, a drop of 14%.
  • BP was at $70.60, but is now just $61.50, a 13% decrease.
  • Exxon Mobil was $89 and now is $81.70, a drop of 8%.

I also recommended the

UltraShort Oil & Gas ProShares ETF

(DUG) - Get Report

, which rises as the energy sector (generally) weakens. This was trading at $27 that day and is now at $36 -- a 33% increase. I have traded in and out of that ETF since, but, generally, that has been a great trade.

Many of the integrated oil companies report earnings this week, and I am not expecting much good news. I am most concerned about their production numbers. Many big oil companies are having a difficult time just keeping up with their current production levels.

I suspect that since their last earnings reports, most if not all, have not dropped their production numbers. Therefore they may actually level off.

No new major production developments have taken place in the last few months, so I doubt any of the companies will be able to speak of substantial increases in production, either. With stable output, these oil giants may start to look cheap.

We should also be aware that much of the drag on the integrated oil companies' results has been the high cost of crude in the refining process. I fully expect that those high crude oil prices will continue to drag on the refining side of the "integrated" oil process.

Another problem for earnings is the fact that with the $4 pump price for gasoline, demand has dropped. With high input price of oil and lower demand, I suspect that the numbers from refining will be a drag as well.

That being said, I think we start to cover the recommended short from June 9. With these companies trading at price-to-earnings levels this low, it's not prudent to maintain short positions. Also, earnings releases this week may offer glimmers of bullishness. Either way, I recommend covering any integrated oil shorts.

I am actually looking to buy small positions in ConocoPhillips and increase my Chevron position. ConocoPhillips trading at a P/E of six is just downright cheap.

And Chevron is still my favorite company in the world. I have owned it for years, and it always comes back strong. As soon as gasoline finds a bid, Chevron will rip. The company is the biggest refiner of the most demanded and profitable gasoline in the world -- West Coast gas.

For a teaser, I have been buying natural gas stocks lately and will elaborate on that in a column soon. Natural gas prices have been crashing and the gas stocks are being hammered. I feel like they are getting hit too hard. They should be lower than when gas was strong, but these two companies are being unduly punished.

Until then, trade with your head, not over it.

At time of publication, Bolling had no positions in stocks mentioned, 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.