I was getting panicky for an image for this blog post, so I just decided to go the corporate route, given there was nothing particularly funny or snarky that I could say. Sad part is, despite the interesting nature of the chart, and the decent statistics, the statistics do not meet my criteria, so once again, we get to scratch the last standing soldier on the reversal list this week.
Let us cut to the chase. Of the 19 survivors of the 20,000 stock screen, 9 were petroleum related (either exploration and production, or pipeline and machine equipment). These were APA, APC, CJES, NBL, NFX, OXY, CMLP, EXH, and HES.The rest were transportation related names (NMM, CNI, UNP) and the rest a hodgepodge of utility (SO), media (CBS,SNI), and diversified company names (BAM).
When one strips away value as a criteria (that is, dumping names on an enterprise cash flow value basis), UNP, CMLP, SNI, CNI, NMM,CBS, SO, and NFX survive, with APA right on the edge (and I will discuss that in a moment). NFX, last weeks candidate, did slide as I thought it might, and I will also briefly cover that one.
When I ran the neural net patterns against the price charts, APA was the only close one, but it just missed. As market and even sector volume (for energy stocks in particular lately) has gotten a bit spotty and in some cases erratic, the confidence levels of these models deteriorate. I think what is important however is that time after time, US energy names are appearing on this list, whether they are independent producers or multinational conglomerate producers and refiners.
Why is APA on the fence? Well, a lot has to do with earnings performance and the price of oil itself. I am not always a fan of Zack’s, but that article summaries Anadarko’s (APC’s) difficulties. If prices stabilize and rise, they make more money and can meet their optimistic earnings estimates. If not, they will miss. The one thing APC has done correctly is shut down non-performing wells and removed rigs in non-performing areas. For some reason at the time of this writing the link to the CEO’s comments about oil prices cannot be accessed, but the balancing point for APC is at roughly $60/bbl of oil, which is roughly where crude oil is priced now. If prices rise to $75, the company has the leverage and the right cost structure to profit nicely from their best producing oil and natural gas properties. If not, then there will be a longer waiting game for price increases. This closely related article from TheStreet.com describes the move that APC and other companies have made to increase operating efficiencies so that they can profit from much lower oil prices. If that indeed happened and APC were to rally from that reversal point on Friday, the price symmetry target would be roughly 102.70, as shown in the chart below.
There is only one problem with that theory and that is that the neural net statistics don’t quite support doing that with APC. I will keep it on the watch list.
What about NFX? It basically did as I said it might and drop a bit before reversing again. What do I think now? Take a look at this chart of NFX, marked up for potential price symmetry.
As you can see, we have both a bullish engulfing candle on Friday, which adds credence to the reversal theory at the lower price that I mentioned last week, yet the statistics are still pretty neural about it all. If I had to guess, I would imagine that we might see the price symmetry shown here and a reversal around 31.20, but at this point, it is anyone’s guess.
Much will depend on what oil prices do over the next couple of weeks. With geopolitical forces playing games with oil for regional self-interest and economic power, all the smart exploration and production companies can do is improve operating efficiencies, shut down the marginally producing wells and rigs, and wait patiently at much lower outputs. Oil prices are now settling toward some kind of nervous equilibrium, but it will take time to shake out. I think one thing is clear though, institutional investors and individual investors are now beginning to buy the oil producers again, albeit very slowly and methodically. I will continue to look for these and other sector names as they show up on the screens.
I do apologize for the lack of great patterns, but this market of late has not yielded many. Those of you who have followed me over the years know that I will not produce crap to gather eyeballs to this page. I do the very best I can with my research, and let it hit when it hits. Summer is coming too, which can lead to additional trader lethargy. That same period of time can allow us to do some good research as things slacken up a bit, and we can be ready to find some really decent candidates for trading. As an aside, I have had to make adjustments to my futures and forex trading to accept a little less profit to increase my total win percentages, win/loss ratios, and profit factors. I do that to continue to gradually INCREASE position size as profits grow. Even at a slower pace, if I can reduce time in market and increase percentage profits, I will make even more money down the road as trends resume (in either direction).
Patience is all one can have when conditions are not favorable for your trading style or general trends are flat. Keep your patience and your discipline in place, and you will win in the long run.
Thanks again for supporting this blog! More is coming.