Halliburton (NYSE: HAL) is reportedly seeking to buy Smith International (NYSE: SII). If this is the start of an M & A wave for oil service, it could be a positive for the Oil Service HOLDRS Trust (NYSE: OIH).



Chart Courtesy of StockCharts.com



Oil service stocks are the bellwether for the oil markets. When these shares move up or down, the price of crude often follows. Lately, oil service and crude oil prices have been rebounding, despite a strong dollar.

Some of the rise has been from expectations of some kind of economic stabilization and some expectations for increased demand for crude. Yet, news of the potential merger of Halliburton and Smith International may have had a positive effect on OIH.

The key for investors is to make sure that if OIH rallies, crude follows. If there is no such coupling between the two, then the OIH rally, if it develops will be on expectations of more mergers in the sector.

The current economy is the type in which companies that have strategic similarities and interests do look to merge. Ususually, they are looking for savings and increasing their market share.

For OIH, a good move above 125 would be a signal that more gains could develop. This would likely be more pronounced if other merger news appears within the next few days to weeks. Dr. Duarte owns shares in OIH.

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