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

To: Stonehenge who wrote (6078)	12/24/1997 9:22:00 AM
From: Big Dog	Read Replies (4) \| Respond to of 95453

From last night's Rightline Split Report rightline.net free two week trial available Today I got this overwhelming urge to jettison every single position I had and go to cash.ÿ I have had this feeling before and in every single instance, I was wrong - completely wrong almost to the day.ÿ Reading over several forums, I sense almost a feeling of desperation and certainly a high degree of fear.ÿ Big fear combined with frustration in one of the Oil Drilling boards.ÿ Reading about the fear and frustration makes me more inclined to believe we are close to a bottom.ÿ The big, smart money out there, the opportunists -- are ready to strike, just when everyone has bailed out at the bottom. OIL DRILLERS There isn't a sector more unsettling about the underlying concerns in the market now than the Oil Drilling Sector. I have been holding back a bit on the Oil Drillers because of their weak performance recently.ÿ Let me say that heading into 1998 I feel strongly that few sectors have the earnings and revenue growth as do the Drillers.ÿ I could try to list all the reasons why I believe this, but I feel I need to be careful not to get into a cheerleading mode because more than a few beginners read this. I think that any knowledgeable trader or investor realizes how incredibly oversold this group has become.ÿ And I have to tell you that it is one of the more puzzling stories I have encountered.ÿ Make no mistake, some force is driving this group down.ÿ I can speculate as many have been but none really seems to understand why the selloff has lasted as long and as severe as it has.ÿ One line of thinking is that one of the big contrarian mutual funds who buys stocks that are out of favor as the Drillers were in the late 1980's is selling - and selling big.ÿ Good theory, but we won't know if it is true until long after it matters. Another concern was presented in an article by TheStreet.com yesterdayÿ describing how the market had reacted negatively to Schlumberger's recent contracts that appeared to be contracted for a below the going day rate. Current market speculation is that SLB underpriced these assets and that dayrates within the high-specification floater market have peaked. A few years ago I had the opportunity to work on the negotiation of a large computer contract with Schlumberger.ÿ After that experience, the article implying that Schlumberger had "given away" assets surprised me.ÿ These guys were some very creative and talented negotiators who approached the game from a win win standpoint, but always made sure they won just a little bit more. Today, a report was issued from First Call by an analyst who refuted the idea that Schlumberger had undercut the day rate.ÿ Rather, be said, "There is absolutely no reason whatsoever for SLB to enter into below market contracts for new-build high-specification emisubmersibles. The company is the largest oilfield service company in the world and among the largest in the area of offshore drilling. More importantly, SLB is the most profitable oilfield service company in the world."ÿ Yes, virtually no Driller missed earnings last quarter as a majority of them had positive earnings surprises.ÿ Yes, there have been exactly ZERO earnings warnings (that I am aware of).ÿ I haven't seen a solitary downgrade but rather upgrades.ÿ Today came the first downward earnings revision of the lot, for Tidewater (TDW).ÿ Compared to the warnings riddled techs, this sector by rational thought should be blowing doors on the techs.ÿ Yet the techs are out performing them over the past days.ÿ So what is the difference?ÿ Sentiment and market psychology. Again. Watching the Drillers has to teach us an important lesson.ÿ One that all of us must learn, and keep relearning.ÿ That is simply, don't fight the trend.ÿ The Drillers are heading down and have been.ÿ Until big money stops selling and cash rich funds begin to accumulate the stocks, they won't go up.ÿ No matter how strongly we believe in their fundamentals or potential.ÿ The "why" does not matter.ÿ You can buy the best stock there is at the wrong time and take a bath.ÿ Conversely, you can buy the worst looking stock at the right time and make a fortune. The tape tells us it is not quite time to be buying the Drillers.ÿ They have a long way to go before they revisit their November levels. Missing a day or two of an won't cost much of the upmove but can dramaticallyÿ lessen your risk exposure substantially.ÿ Wait for the group to turn up, and demonstrate strength before you consider moving into them.ÿ For now, patience is the watch word.ÿ When buyers and big money begin piling on the bandwagon, the move will be strong and should last a while.ÿ Many of these stocks are trading at half what they were in November before the heavy selling began. There is a good lesson to be learned from their trading behavior.ÿ The way the stocks are being traded is quite evident.ÿ Any attempt to rally is met with traders selling the rally short.ÿ This is the way to trade at this time.ÿ Simply put, what traders are doing is whenever one of the stocks rallies and sets a new daily high, it is met with a wave of shorting.ÿ This is exactly the opposite tactic of buying the dips, which isn't being done.ÿ Until the sector emerges from this bloodbath, this is the only appropriate trading strategy.ÿ Buying the dips has been, and continues to be a very dangerous approach because new lows follow previous lows. It doesn't matter if a stock is upgraded, or wins a big piece of new business as did FGII Monday when they announced some $268 million in new business.ÿ Nothing is helping as long as the intensity of selling remains.ÿ Rumors abound about market manipulation.ÿ It's hard to imagine any entity being able to control an entire sector with the market capitalization of the Drillers.ÿ I know it smells up the joint, but we can wait the sellers out.ÿ Because at some point they have to run out of stock to sell - we certainly hope so!