Tracking momentum in oil stocks helps investors capitalize on price trends driven by crude oil market dynamics, geopolitical developments, and industry-specific factors. However, understanding the forces that drive oil prices and knowing how to interpret the right indicators are crucial for successful momentum trading or investment in the oil sector.
In this blog, we will explore how to track oil stocks’ momentum.
Key Methods to Track Oil Stock Momentum
Momentum refers to the tendency of stocks to continue moving in their recent direction, either upward or downward, over a short to medium time horizon.
In the oil industry, momentum is often influenced by fluctuations in crude oil prices, production decisions by major producers, shifts in global demand, and geopolitical events that can cause sharp and sustained price movements in oil equities.
Some methods used to track momentum in IOC share price or other oil stock prices are mentioned below:
Monitor Crude Oil Prices
The momentum of oil stocks is closely tied to the price of crude oil futures, such as West Texas Intermediate (WTI) and Brent crude. Tracking these benchmarks and their moving averages helps predict potential momentum shifts in oil equities.
Regularly observing price trends, moving averages (such as 50-day or 200-day), and volume can indicate when momentum is building. For example, oil prices trading above key moving averages often signal bullish momentum in related stocks, while prices falling below these levels may forecast declines.
Analyze Momentum Metrics
One common metric is the “12-1 month return,” which calculates a stock’s return over the past 12 months, excluding the most recent month to avoid short-term reversals.
This indicator helps isolate persistent momentum trends. Combining price momentum with fundamental momentum, like business growth rates and earnings trends, yields a stronger signal for evaluating oil stocks.
Use Momentum Scanners
Momentum stock screeners help filter oil stocks based on price performance criteria like recent gains, volume spikes, or new highs. These tools allow investors to identify stocks gaining upward momentum and avoid those showing weakness.
Many momentum scanners provide real-time alerts for oil and gas companies making new highs or lows, correlating these movements with breaking news to give investors comprehensive market insights.
Study Volume and Price Breakouts
In the oil sector, analyzing volume and price breakouts is crucial for identifying genuine momentum and sustainable trends.
When an oil stock or crude oil futures contract breaks decisively above a key resistance level or below a support level, the presence of high trading volume is a strong confirmation that the move is backed by broad market participation and not just short-term speculation. Volume-backed breakouts tend to sustain momentum better than low-volume moves.
Combine Fundamental and Technical Analysis
Technical indicators such as the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), and rate of change can quantify momentum strength.
While momentum is mostly technical, integrating fundamental factors like earnings growth, production reports, and cost structures of oil companies adds robustness. Stocks with positive fundamentals supporting their technical momentum have higher chances of maintaining upward trends.
Stay Updated on Geopolitical and Industry News
Geopolitical events (sanctions, conflicts), policy changes, refinery outages, and supply-demand reports significantly impact oil prices and stock momentum.
Staying updated with industry news, OPEC announcements, geopolitical tensions, and earnings reports is critical since such events often trigger momentum shifts.
Conclusion
Tracking momentum in oil stocks combines technical indicators, fundamental analysis, and timely news monitoring to identify lucrative trading opportunities. While momentum trading requires agility and risk control, the dynamic nature of the oil market creates ample potential for investors willing to stay informed and act decisively. Through informed tracking, investors can better harness oil stock momentum to enhance portfolio performance in a highly cyclical and impactful sector.