Mid Sept this was a buy even if the entire count was unclear. At the time it was suggested that the stock could go to $42. The flat correction turned out to be irregular and consequently the stock briefly dropped below the $35 level. To play it save it should be sold today at the close or at $40 for a 15% gain.
The verdict is now out, they were mostly to blame but the other parties were not completely innocent either. Despite all the ups and down this stock has adhered remarkably to EW principals and Fibo ratio’s. Back in Jan 6 it was recommended to sell the stock at $47.50 (see the old blog) The stock did go higher as on Jan 18th it almost reached $49 (a $1.50 difference) and then it starts to implode. Here are the two charts, then and now;
Again it reaches 61.8%, this time to the downside and stops dead at that point. A $7 (to $42) rebound is quite likely here but the pattern does not appear to be complete so one needs to take care when playing this!
Now we know who did it, or at least what – a lack of a culture of safety – at BP, but also Transocean (RIG) and Halliburton (HAL). Not that difficult to prove. Makes one wonder why we cannot prove the same for the financial disaster that preceded it, after all many of the players are the same ones or in comparable positions, Dick Cheney & Bush, Rubin , Gramm both Phil and Wendy, Cox , Greenspan, Ayn Rand and so on, all contributed to relaxing regulations and or emphasized the market’s inherent ability to self correct itself. Tony Hayward was essentially sent, almost literally, to Siberia for making the rather honest statement that he would not mind getting his life back, Greenspan , on the other hand, who has never been honest about anything is still basking in the sunset years of his career as maestro.
Anyway the stock reached our target (we are already out) at the expected level of about $47. Sure it can go higher by why not leave good enough alone. See chart;
The chatter now is that Royal Dutch was thinking of taking it over but never moved into action. What the chattering classes of investment advisors seem not to know is that Royal Dutch, contrary to it’s name, is actually 60% Dutch and 40% English, being the merger in 1907 of Koninklijke Olie and Shell Transport and trading so a further takeover of British Petroleum would have made the whole thing even more British. (comparable to Unilever). However they balked at the unknown risks and passed. The question now is , if one of the largest companies in the world passed on the opportunity at <$30 why would anyone else get excited at >$47?
If we had not already sold at $44 or so , we would do so now.
Have not even looked at this one for a while. The former CEO’s comments yesterday reminded me. Last time, on July 16th I opined that the stock should not trade below $34 and that a reasonable target would be about $47. We got to $44, give or take, and I would sell here and just watch what happens next. This stock could be in a new bull market but unfortunately the action from the lows looks a lot more corrective than impulsive. Here is the chart.
Apart from the less than promising EW pattern, the RSI and MACD are turning down.
See also May 27th blog!
Ultimately BP could go to the $60 level being the top in an A-B-C multiyear correction. We will see but if this does happen it will not be in the next few weeks or months. So what is the shorter term target? Too many things are going right at this time. Exxon takeover, Arab capital injection, blame spreading,and dozens of other considerations that mean very little. So why not depend on the chart? $47 is about 62% retracement of the C leg. It also corresponds with wave 4 of 3, a common event. An island of sorts has been left behind by the two gaps on the way down and up, I do not expect the stock to enter this area again, so a drop below $34 is now unlikely. So far the rise from the lows has occurred in a very narrow channel suggesting that it is one single wave! Corrections are invariable a-b-c structures, so if this was a correction which I very much doubt, the stock would first go down only to rise again later. If it is a new bull market, which I prefer to think it is, the first leg up should be 5 waves which probable means that we have one more to go which could easily add another $6/7 to get us to $47 in the first round. There the stock should be sold ( and perhaps bought back $10 lower).
We stick with the view that BP should get a recent bounce, either because the Arabs are going to inject capital, or at last they will make progress, or, and this is not that unreasonable, they are successful at deflecting some of the culpability on their partners in crime. In any case the symmetry of they down legs that suggests we should get a decent bounce soon. It is also down a near perfect 62% over the last two years. Stay with it.
By the way I mentioned Phillip Morris (MO) as an example of a stock that should have ended life given the sums of money that the courts figured they should pay the complicit governments for causing so much damage to the health of mankind and, by extension to the costs of medicine and healthcare. Incidentally, the latest take on this is that smoking actually diminishes these costs as people move on at an earlier date and avoid the most expenses years of their lives by signing off early. Look at this chart and wonder how MO was burdened by the damages it was assessed.
Ok, we got this one wrong, clearly too early by not waiting for the proverbial 62%, but we are there now more or less, so stay with it.
Now that the company seems to be making progress in shutting down their well in the gulf (Obama’s Katrina as Bush’s Karl Rove observed), is this possible a buy. The answer is YES.
The long term chart suggest that the top in 2006 was the real or “orthodox” top that was followed by a very nice a-b-c down precisely to the 62% level as is so often the case. After that the upleg could be 1. all of a counter-trend, 2. part (a) of a counter-trend, or 3. a brand new bull market. If 1 we would expect a move of about $10 up for wave 2 of c, if 2 a move to at least $61 or up about $16+ should be expected. If 3 the sky is the limit.
So, if in all three cases, it is reasonable to anticipate at least $10 or about 25% up it follows that this is a buy. Interestingly the rising costs of insuring this kind of activity will, in the future, only be doable for companies like BP, Shell, Exxon and the like, all other smaller players will be cut out of deep water drilling! Paradoxically BP may have strengthened its position by causing this mess.
Always use stops on these commodity plays!
Subscribe here to receive email notification whenever a new post is created.
Loading...