4/21/05 intra-day notes

Oil leaks
Goldman Sachs prediction on oil: On March 30, Goldman Sachs advised that the world energy markets are in the early stages of what could be a 'super spike' in prices up to $105 a barrel. They further advised that this forecast is on the conservative side.
http://money.cnn.com/2005/03/31/news/international/goldman_oil.reut/index.htm
"Goldman is the biggest trader of energy derivatives," the article goes on to say.
.
Dissenting opinions:
http://www.marketwatch.com/news/story.asp?dist=&param=archive&siteid=bizjournal&guid=%7BF25E14D4%2DFDFE%2D4CC6%2DBDC2%2DFCB6BCA84E57%7D&garden=&minisite=
In the MarketWatch article linked above:
...John Kilduff, energy risk analyst, Fimat USA: "I don't know how they get to that number, short of a significant supply disruption event occurring."
...Kevin Kerr, Kerr Trading International, called the Goldman announcement irresponsible and "clearly an attempt to talk up the market on nothing more than hot air. Goldman has huge speculative energy positions and they have no interest in watching it go down right now."
.
...Here is a link to the Daily Reckoning site for another take on the Goldman analysis. In this article, from the Rude Awakening portion of the site, the author advises that he is a long term bull, but would probably favor fading the Goldman prediction, at least in the short term. Please note the chart showing the divergence between the price of crude oil and XOI, the index of oil stocks. That divergence appeared to be bearish for oil stocks, and indeed they have suffered since.
http://dailyreckoning.com/RudeAwake/Articles/RA040505.html
.
Stat of the day: On March 30, the day the Goldman analysis was released to the public, XOI had been in retreat for seven straight days. It had fallen from 875.03 on March 18 to close at 829.63 on March 29 on the heaviest volume in over two weeks. March 30, it closed at 840.16 and two days later was at 870.23. On April 20, XOI closed 814.80, down 3% since the March 30 announcement, and 6.4% since the high two days later.
...I don't know who was correct, or what their motivations were in either case, in the difference of opinion between Goldman and Mr. Kerr. In the long term, I am very much an energy bull, but in the short term, XOI has topped and has fallen, not risen.
.
...I will say that when I think that XOI has turned bullish again, I intend to back up the truck and load up on my favorite energy sector stocks. I won't buy all of them, of course, but they include VLO, XTO, SU, CNQ, and EOG. I tend to favor North American stocks in the sector in order to reduce geo-political risks.
.
XTO
...XTO: This has been my longest term favorite in the oil/gas sector and it has me concerned. It peaked at $36.50 on April 4, which with the benefit of 20/20 hindsight, was a parabolic exhaustion top. Since then, as of the 4/20 close, XTO had dropped 15.6%, in comparison to a 6.7% drop in the XOI index.
...Yahoo Finance lists APA, BP and XOM as competitors to XTO for comparison purposes. I also added SU, another favorite oil company of mine. Those four companies have dropped 11.7%, 5.2%, 7.5% and 13.0%, for an average of 9.3%.
...Over the 13 sessions from April 4 through April 20, the five up days averaged 1.7M shares and the 8 down days averaged 1.8M shares.
...This has been a long term holding for me, but sitting through a 16% hit makes me antsy, and I don't think it is over.
.
Greenspan: Budget Deficits Pose Danger
http://biz.yahoo.com/ap/050421/greenspan.html?.v=11
Though you'd never know it by today's market action. Are these manic markets, or what? Gloom and doom everywhere yesterday, now today buyers are falling all over themselves.
...Actually, I think the bulls were finally able to force a lot of shorts to cover today. If you look at a chart of the Nasdaq, the action of the past four days had created an island, trapping all the late arriving shorts. Now today, the new shorts are covering and the longer term shorts are booking profits, it appears to me.
.
Definition (paraphrased from another site):
Analyst Upgrade: Brokerage has shares they need to sell. The upgrade is a tool to add liquidity by bringing in buyers, and at a higher price.
.
Happy trading all.