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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: The Perfect Hedge who wrote (13323)3/2/1998 8:38:00 PM
From: Thean  Read Replies (1) of 95453
 
It's about time I do some serious writeup on the drillers again. As
of the close today, I'm more excited than for the past 1 month because
we are very close to a near term shift in trading sentiment and
pattern. Here are why:

1) Today we have three days of consecutive inverse correlation to
crude price.

Last Thursday oil was down. OSX was up strongly.
Last Friday oil was up (just slightly). OSX was down (also slightly).
Today Monday oil was down. OSX was up strongly.

All these based on very simple rationale: we have close to 3 weeks of
strict positive correlation between oil price and OSX. And we just
broke three days in a roll. Three days is really a magic number
because one day makes no trend, two days a trend makes, three days a
confirmation made.

2) We have selective breakouts in the charts from the upper resistence
flat line standpoint (those with * means a real breakout)

Symbol Resistence
====== ==========
RIG* 44
ATW* 47.5 (strongest of all)
NE 30 (31 for no-doubt breakout)
ESV 31
DO 48.5
GLM 26
HAL 49
SII 58
RON 57.5
EVI 52
VRC* 25
FGII 35.5
MDCO 20.5
NBR 28
OSX 108 (next resistence at 114.5)

3) As can be seen from the above list, the best performers are the
deepwater drillers (best fundamentals) and the service companies
(best merger/takeover potentials). The land drillers are way below
their resistence and we all understand why. I put up NBR for an
illustration and NBR is the best performing land drillers. CDG's
weakness is parculiar but it could very well be linked to its
Venezuela land exposure and its shallow water GOM fleet.

4) The GOM lease sale is coming up in 2 weeks. They are selling
primarily (if I remember right about 70%) the deepwater tracks.
Therefore, one would expect more writeups on the deepwater because
everything else being equal this is a primarily deepwater track lease
sale. However, this is a double edge sword. Traders will be sweating
over the result because if it is as good as last year then the
deepwater drillers will go higher. If the response is below
expectation then everyone goes down bad. If the response is as
expected then it will have a positive bias but the traders can
certainly do damage by taking profit especially if OSX is close to the
next level resistence by then.

5) I'm not throwing oil price away from the equation but I would also
pay some attention to the natural gas. The magic number for natural
gas is $2.50. CDG and some land drillers (UTI) should benefit greatly
if this level is surpassed. The more days we can sustain without
correlation to oil the better. I've been following the drillers day
in and day out for over 1 1/2 years and I know the market always
shifts towards something. For example, it could be oil price (recent
month), natural gas price (last winter), long stochastics (April-Sept,
1997), and inverse TA (Oct-Jan). That's why those who preach only
fundamentals are very poor short term timers and they cannot beat the
market.

6) Watch for the woman in red Maria tomorrow morning. If someone
pound the table, she will shout three times as loud. Maria is our
friend. Bob Pisani is our foe.

7) The confirmation tomorrow lies on the close. Early morning
strength will do wonder but the closing numbers are the key. If we
close on a wimper, all bets are off again and we go back to the dog
house.
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