Wrong! Dispatches from the Front: Cramer Says Recent Driller Debacle is Bullish
By James J. Cramer from thestreet.com
11/14/97 8:39 AM ET
Who is Paul Chambers and why is he saying all of these horrible things about my favorite stocks?
That question rifled through the minds of at least one thousand managers of mutual funds yesterday, as everyone's beloved group, the oil service stocks, got laid to waste, in a tumultuous, endless session.
Until this week the drillers seemed immune from just about every contagion out there, including foreign nightmares, lower oil prices, and the Saddam scourge. But things started to fall apart Tuesday, and by Thursday, Paul Chambers, the Lehman Brothers oil-service analyst, was able to knock out the now-glassy-jawed group with just a hint of a rumor of a downgrade. The decline was so vicious that he said in today's Journal interview, "I'm basically the fall guy for declining prices."
What really went on? First, in the interests of the thought police, I am long the group so you can either dismiss me and click to the next story, or say, "hey, he must have done some homework before he penned this piece."
Non-purists, it's the latter. In every cycle there are specific patterns available to the naked eye. In this one, the drillers stand out as the beacon, the virtual safe harbor of the market. Wow, is that a turnabout from the 1980s when only Robert Torray, a mutual fund guy, made a lonely, Custer-like-stand in the group, and Global Marine went through a ton of restructurings and recapitalizations. This group took no prisoners in the brutal 1984-86 period.
In the horrendo sell-off that was October 97, the sector weathered things swimmingly, with only a panic seller of a couple of the big names mucking things up in the last hour of Down 550 Monday. The group was the first to snap back on Bounce-back Tuesday, confirming everything we know about the concept of relative strength.
But in this brutal retest period, the period where in-boxes go flying off peoples desks and the guys in Motley Fool chats start harassing me -- let alone the corpses in the ASND thread at Silicon Investor -- everything must be taken out and shot. That this group was the last to retest again is actually bullish. That the decline was as sharp as it was, can be attributed to the mutual funds taking lumps elsewhere and then frantically cashing in on the drillers to book some gains for pending distribution. Lord knows, there are gains to be had in this group.
Like every sell-off, this one finally reached crescendo proportions. That's when brokers don't even want to go out with their "re-it buys" or buy recommendation reiterations, for fear that their clients will pull the wire at the sheer mention of Smith International and Baker Hughes. We had that telltale sign by midday yesterday when the group started to lift.
My partner, Jeff Berkowitz, commented that these stocks are exhibiting signs of technology-like gyrations, to which I retorted that the holders, the mo-mos, simply never learned how to trade. These guys, '90s creations who are new to the game, tend to keep feeding 50,000 share orders to different brokers, burying one after another with merchandise. (How should they do it? As the Trading Goddess taught me: you go into DLJ or Merrill or Goldman, firms with their own capital to facilitate, and you say "Bid wanted, 1,000,000 Global Marine" and you hit that bid when you get it. That way the rest of your portfolio doesn't do a death rattle as you systematically mow down every trading floor in sight with 50,000 shares of Global. Before you e-mail about "facilitate," "bid," and "capital" I promise to do a series on what it means to trade in size within the next few weeks.)
Anyway, by 4:00 p.m. this group looked technically knocked out and I found myself waiting for CNBC's ex-technical guru, John Murphy, to pronounce them dead so I could guarantee you that they would come roaring back.
But without my favorite contrarian -- meaning a guy who is wrong at every single large inflection point -- on the tube, I will have to settle for various brokers of mine saying that the group is done for the year. They all think the group has had it. So, of course, I am a buyer. |
