To: Bob Biersack who wrote (361 ) 6/8/2001 5:34:06 PM From: keithcray Respond to Oil Services Group: Today's tech meltdown comes as little surprise in light of Juniper's (JNPR) nasty warning... What does come as a surprise is that investors aren't moving money into the oil services group as a defensive play... Throughout the tech wreck the oil services sector has been seen as a relative safe haven... One look at a chart comparing the Oil Services Index and the Nasdaq Composite and you can easily see the inverse relationship... The biggest reason for the divergence is the drastic difference in each sector's earnings outlook... Whereas tech earnings have (in most cases) evaporated faster than water in the desert sun, the oil services group has enjoyed tremendous bottom-line growth... Neither sector is expected to see a noticeable change in its earnings pattern for at least another quarter... So why isn't money rotating into the oil services group today? And what does it mean for the group longer-term? It's a summer Friday and investors could simply be heading for the exits with little desire to initiate new buying... If this is the case, we should see the group show improved relative strength on Monday - especially if tech remains weak... However, Briefing.com contends that the industry's failure to bounce, while the techs get beaten up, has a deeper meaning... For one thing, traders should note that the Oil Services Index broke below its 20-, 50-, 100- and 200-day moving averages this week... Index also trending toward the lower end of its months-long sideways pattern... The technical deterioration in the face of still strong top- and bottom-line growth suggests to us that institutional investors are beginning to reduce exposure to the sector on the assumption that the good news is all in... Lending support to this view is the recent drop in crude from over $30 bbl to under $28 bbl... Earlier fears of $3 a gallon gas and over $35 a barrel oil have eased amid some recent signs that crude supplies are improving... Could this just be a temporary downturn in crude prices? Sure, but the drop in crude could also be telling us that the global economic slowdown has finally resulted in more of a balance between supply and demand... If true, then crude prices likely to trend toward $25 bbl... Either way, with crude having peaked (at least temporarily), the leadership change in the Senate potentially altering/delaying the Administration's pro-drilling energy plan, technicals breaking down and comparison periods getting much more difficult, maybe the sector's inability to bounce on the bad news in tech shouldn't have been so surprising after all. -- Robert Walberg, Briefing.com
