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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: megazoo who wrote (3120)	11/18/1997 8:47:00 PM
From: Bob A Louie	Read Replies (1) \| Respond to of 95453

Barrons article was written by a reporter not an analyst. Here's a perspective from a hedge fund manager who's been there, done that. - Bill Wrong! Dispatches from the Front: Cramer Hangs On as Drillers Dive By James J. Cramer of thestreet.com 11/18/97 5:06 PM ET Strap on the electrodes. Turn the electricity to 10,000 volts. Heck, throw some water on for the snap, crackle and pop effect. Maybe then I won't feel the pain currently being inflicted on me by the drillers. Are these oil-service stock selloffs brutal or what? This one is perhaps the most insidious because oil ain't doing a thing. CoFlex, which I didn't know squat about (other than it's a French driller), reported an absolument fantastique quarter just last night. The group even opened strong, with CoFlex leading them. And then, boom, apres moi le deluge. I've been pretty vocal about why I like the drillers: They have the numbers. Rather than having to deal with tech companies blowing up left and right, I have the luxury of being in a group that gets numbers bumped up after each reporting period. But sometimes we have to pay the price of that luxury. The price tag? Massive profit-taking. Nobody ever believes that profit-taking can bring a group down. People want to hear that somebody downgraded the group, or that one of the group's players blew up. They want to hear number cuts. They want to hear Mobil saying they won't pay these rates. They want to hear that too many rigs are being built. They want to believe that there is a reason for the pain. Forget it. When you are riding winners, winners get poleaxed by profit-taking. As I have said many times before, and will say many times again, the profit-taking gets exacerbated by November capital gains season. Now that 22% of all stocks are owned by mutual funds, and mutual funds have plenty of losses, what a great idea to offset those losses with sales of Smith International. It gets worse. This year hedge funds, piggybacking off of our pain, are piling into the Philly Stock Exchange to buy puts and sell calls on the OSX, the oil service index. With the usual common stock buyers turning sellers to lock in profits, the pressure from all of those put buys -- the market makers have to short the stocks to hedge their own positions -- gets wildly overblown. I can't speak to when this pressure will end. Some of it should dissipate after mutual fund profit-taking ends in a couple weeks. But I can speak to the last time I got blown out by derivative pressure on a group I loved. That was in the third week of November, 1994, and I had monster positions in all of the money center banks. I had been making good money and feeling pretty flush. So had everybody else. I began to see humongo put buying in the BKX index, an index not unlike the OSX. Not long after I saw the put buying, I began to see a typhoon of bank selling, seemingly from everywhere. At first I averaged down, then I doubled down, then tripled down, and then in a violent, porcelain bus-like wretch, I puked up every bank I owned. You can still see the spot my barf left on the banks' otherwise pristine rug several years ago. Not a proud moment. Had I kept those stocks down I would have made millions! Now I see people lining up to double down on oil service. These same weak stomachs will vomit up their holdings by Friday if the pace of this selloff continues. Trust me; I know the sickness schedule. I charted it. Be ready with the proverbial oil service bedpan when they do. They will create the bottom. Emotional retching always does. James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. His fund is long Chase and Citicorp at time of publication. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Mr. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he welcomes your feedback, emailed to Jjc@Jjcramerco.com. c 1997 TheStreet.com, All Rights Reserved.