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Is It Time To Buy Big Oil?

We are now into the meat of earnings season when it comes to big oil, with the major oil companies in all reporting over the next few days. The first of them, Shell (SHEL), did so on Thursday morning, and if what they revealed is repeated on Friday when Exxon Mobil (XOM) and Chevron (CVX) release their Q2 earnings, I will be repeating what I did there, buying on any resulting dip in their stocks. By the time you read this, of course, you will know whether that transpired or not, and if it did, how that trade fared, at least immediately, but it is still worth explaining what to look for in the earnings reports and why that “buy the dip” trade makes sense, because it is a longer-term trade worth considering even if it doesn’t produce immediate results.

The key to understanding why these stocks might be buys should they disappoint on earnings is understanding the difference between what moves the market in the short and long terms. Short-term moves are about traders trying to anticipate how other traders will react to news. Thus, if an earnings report disappoints, as Shell’s did, those traders compete to be the first to sell, pushing the stock quite a bit lower. At some point, though, the longer-term dynamic based on the conditions and outlook both for the specific company and the broader economy take over.

For oil companies, those fundamental factors are looking better now than they have for some time. Economic data from the US is increasingly…

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EXXON Mobil -0.35
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