Saturday, March 31, 2007
Three Pump Chump
Let me be blunt, I hate the fucking oil companies. There is no bigger kick in the nuts for us SUV-driving consumers than to hear that XOM made 40B last year -- nearly 4 times what MSFT earned. Anybody else find it curious that nobody is calling for congressional hearings on XOM? That being said, I have been patiently waiting for an opportunity to profit on the short side in this group. These stocks have become battlefields and are thus harder to game in my opinion.
My approach starts with a look at the big picture --- see my first post for views on the XOI --- then look to individual names with a favorable technical setup combined with a clearly defined risk profile.
My first short idea is VLO (64.49). As you can see VLO is at a major technical juncture. The uptrend from January has recently been repelled by some serious resistance at 66. Wednesday's reversal day was marked by heavy volume. Not-so-coincidentally this area (marked by the arrow in July '06) is where the selling last began in earnest. The series of lower highs as evidenced by the downtrend line from May 06 is also an impending sign of weakness -- hence the name Three Pump Chump.
Should VLO break below the 64 level, I would expect the selling to accelerate as the stock works its way back to the bottom of its range in the upper 40's. I would be a seller all the way up to 68 but suspect the stock will have difficulty exceeding the 66.02 high printed this week. As I see it there are four points of downside risk (a weekly close above 68.4 negates the thesis) and sixteen points of upside reward (downside target 48).
My approach starts with a look at the big picture --- see my first post for views on the XOI --- then look to individual names with a favorable technical setup combined with a clearly defined risk profile.
My first short idea is VLO (64.49). As you can see VLO is at a major technical juncture. The uptrend from January has recently been repelled by some serious resistance at 66. Wednesday's reversal day was marked by heavy volume. Not-so-coincidentally this area (marked by the arrow in July '06) is where the selling last began in earnest. The series of lower highs as evidenced by the downtrend line from May 06 is also an impending sign of weakness -- hence the name Three Pump Chump.
Should VLO break below the 64 level, I would expect the selling to accelerate as the stock works its way back to the bottom of its range in the upper 40's. I would be a seller all the way up to 68 but suspect the stock will have difficulty exceeding the 66.02 high printed this week. As I see it there are four points of downside risk (a weekly close above 68.4 negates the thesis) and sixteen points of upside reward (downside target 48).
Comments:
<< Home
I don't get it. Short term, anyone can be right,... as for long term... After picking on the price of oil, not once did you mention the crack spread in reference to shorting VLO. I have owned VLO, WNR, FTO, and GI for a very long time and the price of oil doesnt concern me one bit, the margins do. Plus it is much more complicated than just margins, pipelines, PADD breakdowns, location to demand, imports/exports. On top of that, these refineies dont just run WTI, they run Mars, Poseidon, WTS, LLS, HLS, EIC etc etc (All different types of domestic crudes). I have a close friend in McPherson, KS who says their refinery made tons of money last year. Good for them, all you monkey heads use their products everyday, including plastics. I wouldn't pick on them if I were you. You sound like a Socialist crying about XOM. If you think oil is too high, grab some balls and get out there and short USO. I think before you bash oil prices, you need to refresher in supply and demand. I found a good link for you Kidstock.. http://www.eia.doe.gov/kids/energyfacts/sources/non-renewable/oil.html#Howused
Kid- good TA, but leave the politics to the politicians. Nothing would be worse than Fly's blog getting ravaged by right and left-wing political nutjobs. Talk about a de-boner. Just MHO, of course.
I think he was just swearing to fit in.
A fundamentalist, I like refiners short as well.
Gasoline consumption I expect to weaken versus expectations. GDP growth is going to be okay, but not great, and marginal income is still flowing to the top of the distribution. Upper-income people drive plenty, but there aren't that many of them. Gasoline demand is very much from the working class, and a quick look at WMT's numbers tell you how the great, driving unwashed is doing -- okay, not great.
On spreads, mostly using low utilization rates refiners are squeezing products buyers right now, but I doubt it lasts. Post-Katrina spreads went higher still, then came way down. Barring another hurricane hitting refineries, you're going to expect slowing growth to squeeze refining margins as hard this year as last.
My preferred target in this space is FTO. They really don't have anything going on but refining, and trade well over $22,000x daily capacity. Shell recently sold TSO a similar, sour-crude refinery for well under $19,000x times capacity (TSO took marketing assets), and VLO is under $12,000 times (they process a lot of sour crude and run other businesses, too).
Since we know the LBO guys already passed on Shell's refinery and that VLO has their 160k bpd Lima refinery on the block, I doubt there's any risk of buyout, so for now FTO is my preferred short target in the refiner space.
FD: short FTO, long VLO puts
A fundamentalist, I like refiners short as well.
Gasoline consumption I expect to weaken versus expectations. GDP growth is going to be okay, but not great, and marginal income is still flowing to the top of the distribution. Upper-income people drive plenty, but there aren't that many of them. Gasoline demand is very much from the working class, and a quick look at WMT's numbers tell you how the great, driving unwashed is doing -- okay, not great.
On spreads, mostly using low utilization rates refiners are squeezing products buyers right now, but I doubt it lasts. Post-Katrina spreads went higher still, then came way down. Barring another hurricane hitting refineries, you're going to expect slowing growth to squeeze refining margins as hard this year as last.
My preferred target in this space is FTO. They really don't have anything going on but refining, and trade well over $22,000x daily capacity. Shell recently sold TSO a similar, sour-crude refinery for well under $19,000x times capacity (TSO took marketing assets), and VLO is under $12,000 times (they process a lot of sour crude and run other businesses, too).
Since we know the LBO guys already passed on Shell's refinery and that VLO has their 160k bpd Lima refinery on the block, I doubt there's any risk of buyout, so for now FTO is my preferred short target in the refiner space.
FD: short FTO, long VLO puts
So far, so good, despite many grammatical,punctuation and syntax errors.
Also, it's worth noting, political conversations are prohibited, unless of course "Asshat Awards" are being handed out.
As of now, election will not be held, due to "The Fly's" pleasant mood and "charitable" nature.
Also, it's worth noting, political conversations are prohibited, unless of course "Asshat Awards" are being handed out.
As of now, election will not be held, due to "The Fly's" pleasant mood and "charitable" nature.
you know what's worse than long posts? LONG FUCKIN' COMMENTS! seriously nobody wants to read your thoughts if they are more than 4 lines, you self absorbed assholes.
and woodshedder, shouldn't you be out hooking up the trailer to the gremlin for the big move? stop wasting time on the webby web.
Crude Broker: Do they know who started the rumor after hours about Iran shooting at the US Navy and if they do will the regulators do something about it or do they say too damn bad suckers its the wild wild West and anything goes.
I commented earlier in the week about how crude was going up but OIH and XLE were sucking wind. That to me is a possible sign of distribution and I have been daytrade shorting them as they gapped early in the morning (sometimes they take too long to fill the short right at the open)and then covering later in the day. Also gold stocks suck (NEM,ABX,GG).They should be going nuts,but they aren't so I suspect they are in the same situation as oil related stocks-distribution. Some of the oil traders are full of crap (no offense to Crude Broker). You watch- if oil starts to go down they will say demand destruction and if oil goes up they will say its because of the hurricane season. They ALWAYS get the number and intensity of the hurricanes wrong.
Good job Kidstock and Go Gators!!!
I commented earlier in the week about how crude was going up but OIH and XLE were sucking wind. That to me is a possible sign of distribution and I have been daytrade shorting them as they gapped early in the morning (sometimes they take too long to fill the short right at the open)and then covering later in the day. Also gold stocks suck (NEM,ABX,GG).They should be going nuts,but they aren't so I suspect they are in the same situation as oil related stocks-distribution. Some of the oil traders are full of crap (no offense to Crude Broker). You watch- if oil starts to go down they will say demand destruction and if oil goes up they will say its because of the hurricane season. They ALWAYS get the number and intensity of the hurricanes wrong.
Good job Kidstock and Go Gators!!!
Christ there are a shitload of new people, I believe them to be Fly's fucking illegal Mexicans trying to learn english. These fucks are leaving fucking novels in the comments sections. I agree with woodshedder, enough with the novels douchebags. Oh and Kid, don't forget you can't predict or shape nut job arabs, I would advise anyone shorting oil to be very careful and atleast use a condom (out of the money calls to hedge).
# posted by 
: 5:47 PM
: 5:47 PM
Gapping: Thats why I daytrade the OIH,XLE,Gold Stocks-because you never know when and whats going to happen in the Middle East.
Why does everyone want to short oil, there has to be a better play out there? It's too dangerous: summer driving season, hurricanes, IRAN!
After hurricane season I might think about the subject.
After hurricane season I might think about the subject.
Kid, when clicking on your VLO chart, it will not open larger. Be careful with blogger when using images that are centered. Typically if you move them once uploaded they will not enlarge. I have no idea how why this happens. I've just figured ways to work around it.
Kidstock, nice charts, thanks.
I also noted the oil stocks negative divergence with the crude and I will monitor this sector very closely next week for short opps.
I also noted the oil stocks negative divergence with the crude and I will monitor this sector very closely next week for short opps.
Shorting a non oil stock can sometimes be a relatively sensible bet. That's because you are 100% sure their prices aren't going to double in the next week. With oil you just never know. That said, the VLO chart shows you that when oil stocks pull back, they pull back hard. Not that I know anything but I'm still long refiners currently.
Post a Comment
<< Home
