George Cole; OPEC's June release will be the catalyst here...
I have to remain skeptical of OPEC's longterm ability to hold everyone in line here of late - without a correction in crude prices.
A spike to $18-19 without any correction, would have led to cheating in small, continual drops in compliance imho. A correction to, and a bounce off of the $16's is good for both OPEC and the market.
It will keep OPEC's compliance honest and more longterm oriented; it allows the market to cleanse itself - shaking out the short term/weak money and drawing in the support money - which we are seeing in individual stocks right here.
It is virtually impossible to predict what both OPEC will do and how the market will react. It is more important to be positioned to weather the potential negative implications from poor OPEC compliance via Domestic Natural Gas stocks - which ride the Crude Oil upside move along with the entire Oilpatch on the way up; but will have a fundamental, non-OPEC related floor in Domestic Gas prices, of which OPEC has no impact on the way down.
It is more important in how you trade the markets reactions here, than in guessing, or predicting what OPEC will, or won't do, or where crude prices go.
A good example; is in the trading of the markets reactions here of late vs. being correct in predicting Oil Prices. Given that we actually saw a ceiling of resistance here of late - regardless of where Crude Prices were rising to; it was more important to be able to trade the markets reactions than to be correct in guessing/predicting Oil prices. This was because the Oil Majors continued to take a stance of doubting the sustainability of crude prices here. They are firmly sticking to their nearterm 1999 fiscal year budgets, regardless of $18+ crude oil. By trading the market (taking some profits off of these tops) one profited by trading the market and not trading off of just predicting the rise in crude prices.
However, I now sense that OPEC is indeed serious; we saw a reversal in Yamanni's comments and the continual focus on $20 ''Brent'' is very, very bullish. There are some undeniable, ''under the surface'' rumblings in Oilpatch land of late.
What remains is the $64 question. That being - how far will the street take the OSX given present fundamentals of low rig utilization numbers , low dayrates, Rig contract cancellations, low earnings etc. We are in a ''deadzone'' of fundamentals here. The ceiling of OSX 80 is going to take a very bullish OPEC report in June and hopefully continued supply drawdowns. Given the strong big block buying like the $8 million dollar buy in RDC today - perhaps the Street will take us to OSX 100 in a June to September run ? Most pundits expect a strong 4th quarter turn in rig utilization, new projects, orders and increasing dayrates.
The magic numbers are 135+ GOM rigs working with a positive trend toward the Palmer/150 number and a drawdown to under 325 Million BOE in storage. When we hit those numbers - we should be at OSX 100 and off & running, or will run through it shortly thereafter...
I got lucky today. Set about 8 limit buy orders and 4-5 sells. Got 1 sale and got 2 buys. Caught VTS at $16 7/8ths - was away from the computer; perhaps could have removed the limit and followed her down closer to the $16 low of the day... but, I did get ''lucky'' got a small fill on RIG at $23 3/4's... trimmed some Monday at $27 and this looked like a nice place to start again. Will sit at $20 7/8ths will a large limit buy and a follow up at $18 7/8ths if they want to take her that low.... Someone wants out of RIG - yes; the Cayman ramifications of not being able to take cap losses is a factor, but the upside fundamental strength of RIG so overshadows any weakness here. RIG has to be a fav' of the few old time value players that know the Oil patch. Their are some Mutual Fund managers who are licking their chops here - allready counting the bonuses that RIG will pay them come 2001 !
RIG is now again; the #1 longterm buy & hold right here. However - who can tell - ''who'' continually wants out here and why ? --- gotta give it some more room to fall here - as the momenteum due to this Cayman Incorportion change and the fear of the number of rigs coming off contract to a lower dayrate environment, is obviously leaning downward still... I will be hard to contain if RIG should fall to $18 - damn; if & when it breaks $20 - I will not be afraid to make it a 25-33% of my entire portfolio. The homeruns are only made by taking some big swings. ESV was near $20 of late - tell me how crazy I am buying a huge stake in RIG if these 2 converge pricewise for example ?
I loved getting back into VTS here - would have liked to have been in at 7/8ths lower, but I like sub $17 here. I'll sit for $14 1/2 in a large way, if we see it (gtc order) and will add as fundamentals change. This one was and will be again - one of the oilpatches favorite mo-mo stocks... it just got a little ahead of itself of late. PGO on any & all weakness here is a buy as well - I follow it down each $2 1/2. PGO moves in pretty substantial swings - don't make my old mistakes by chasing these $1 moves - make it worth your while ... FLC as well - I trimmed a bit; own some $9 7/8ths - $10 and I won't buy again untill say $ 7 1/2 - 8 ish; if FLC blows off on bad news - it's going down a lot more than a buck...why chase stocks with track records of major moves here ? SDC however, is an example where sometimes a $1 move at a resistance/support level takes a lot - great co - I'll probably miss it waiting for $16ish -$17.
fwiw; I see the funds stepping in here bigtime and buying the level of OSX 63 - 68 if we get there. So buying individual stocks on blowoffs here seems prudent.
I keep finding good trading stories like HLX here of late. Fears of getting burned by a potential HMAR default on some boat construction contracts was a ''realistic'' factor - but not a 40% of market cap factor - just overdone; I saw support at $5 and their fundamentals are still impressive. HLX unlike most Oilpatch companies does not have a revenue problem. Their backlog is strong, earnings were acceptable here and ''IF" they manage their costs and eliminate over-runs here, they have the opportunity to really drop some serious cash to the bottomline.
HLX management has continually expressed their own confidence by solidly buying back stock and as much as I want to dislike this company for their poor execution of late; everytime I unemotionally look at their mix of business - which is a great strength ( Governmental, Commercial Shipbuilding and Rig/Fab work in the energy sector), their strong revenue growth which matches the likes of FGI, their solid backlog etc. - I have to buy the bottom-blowoffs in HLX. This is the second bounce play for me on this one and now they seem to be executing on their business plan a little better... good opportunity here at $6 for a nice ride... this stock was $12 last Sept and was one of the strongest performers holding rather well in the June/July 1998 decimation of the Oilpatch. It was also a former $40 stock at the height of the Oilpatch run in the fall of 1997. I like the odds from $5 on this one ! Lots of analyst rumbling as well - they have a lot of upside on the shipbuilding side - aging fleets, Jones Act construction etc... their growth in the Rig/Fab side has had some growing pains - but huge, huge upside if Management executes here. Well worth the risk vs. reward.
What else is everyone else buying and why here ? |
