XOM ,RDS.a and CVX, the big integrated oil companies

xom feb 22 2014RDS.a feb 22 2014cvx feb 22 2014crude oil feb 22 2014

All three yield about 3% and have p/es of about 10x to 13x. Royal Dutch is the only one to have a perfectly clear B-wave, but then it also consumes an inordinate amount of time (4 years) doing nothing. Exxon sports a clear wedge (as the c in the B-wave) which is equally bearish. It also does that Mnt. Everest thing by climbing to just over $100  and falling back from exhaustion. Chevron  is the only one of the three that (arguable) has a 5th wave going into the recent top. 5th waves are normally completely retraced (and then some) during the next retracement. What all three have in common, at least using EW rules, is that they are about to lose 1/2 of their value.

Interestingly, only Royal Dutch resembles the actual movements in the value of crude oil. Of course these are integrated oil companies so there is no compelling reason why they would track the stuff all that closely. But other than Fed. policy there is also no compelling reason why the American oil giants should outperform. BP, by the way, is still trading at about 40% below its peak. It resembles RDS.a but at much lower relative values. It yield about 5% and trades at a p/e of 7x. On a relative basis it might actually be a buy. It is the only one that may have completed an A-B-C correction (or a more complex A?) as can be seen on the semi-log scale chart below;

bp feb 22 2014

BP update

bp oct 2011

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.

BP, British Petroleum update.

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;

BP jan 2011 bp sept 15 2011

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!

BP (see also our July 16 comments).

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;

BP jan 2011

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.