Home Page : www.otcjournal.com
Email Questions or Comments To:
editor@otcjournal.com
To
OTC Journal Members:
 |
Comments
in the BLOG |
 |
There are no new BLOG postings
so far this week. I like to save the BLOG for extreme volatility commentary,
but there isn't much moving to either up or down extremes at this time.
Nevertheless, a few of our recent features are starting to behave a little
better; NWKI and HESG are trying to work higher. I'm working
on an update on BPTR for next week, which is also trying to work
higher. Use the BLOG for any observations or questions you may have.
To use the BLOG, simply go
to the home page at www.otcjournal.com
- the BLOG will scroll down automatically on the right side of your
screen. The most current journal entries appear in the middle of your screen.
Check back frequently for updates particularly when stocks are moving to
overbought or oversold levels or in volatile markets. Your questions and
postings do not automatically appear, so don't bother posting the same
question multiple times. I personally go through to moderate and respond
to every question.
My new biotech idea will be introduced
this weekend. Currently trading at about $1.20, one analyst thinks
the stock will be worth $5. Check your inbox on Saturday or Sunday.
 |
Oil Vs The Market |
|
I really should say energy vs the
market. It's all about the cost of energy, and we have learned of late
there are more components to the end cost of energy than just the price
of a barrel of oil. Oil is simply a benchmark like the dollar is to all
currencies.
Shortages of natural gas are predicted
for the winter, and the price is responding in kind. It's moving up faster
than the price of oil, and some are predicting an eye popping $20 per million
BTU in the foreseeable future.
We learned from the hurricanes that
our energy processing infrastructure is vulnerable to catastrophes. The
price of oil could go down, but the price of gasoline could diverge and
go up due to a shortage of refining capacity. OPEC says there's no shortage
of crude, just a shortage of refineries.
I've been reading some fascinating
commentary on the market vs energy prices, and I'd like to share some today.
One very bright market guru I follow believes the second half of this decade
will continue to be the era of energy stocks, and I'm working on a list
of dividend paying energy ideas that I will publish when we have a pullback
in oil.
The S&P 500 is the best benchmark
of large cap stocks, and it has been mired in quicksand this entire year
up against a backdrop of accelerating earnings and retracting PE ratios.
How can this be? If earnings go up, aren't stocks supposed to go up?
Data published by market technician
Adam Olensis (www.theagiletrader.com)
provides some insight. Trailing earnings on S&P 500 currently stand
at $74.76, and 52 wk fwd earnings stand at $83.06- an increase of 14.4%
in growth from CY04 to CY05 is currently forecast.
So- if earnings are growing at a
solid 14% year over year, why is the market so tepid? Answer- it's the
source of the earnings.
Of the 14.4% S&P earnings growth
expected for CY05, 13% is coming directly from the energy sector. The other
70% of the S&P that's not energy is only expected to contribute the
remaining 1.4%. Without energy stocks, earnings growth on the S&P 500
is only projected at .4% in CY 2006.
Why is that so bad? Because the growth
in earnings from the energy sector is 100% windfall profits from rising
energy costs, which act as a drag on the economy.
The American consumer, who represents
70% of GDP through spending habits, is likely to be squeezed into spending
far less by rising energy costs. Dire predictions of high home heating
bills this winter have analysts expecting a major downturn in sales at
WalMart and a weak holiday season.
Until earnings growth skews back
out of the energy sector, I believe the market could continue to be range
bound, calling into question the traditional post summer 4th qtr rally.
The market will be very much tied
to the price of oil for the remainder of the year, and the two should move
inversely to each other. Does this mean there won't be the standard 4th
quarter rally? - too early to tell, but I still believe it's a high probability.
Here's a weekly chart of the price
of oil for 2005. It's too early to tell if the price is ready to roll over.
The blue line you see is Dinapoli's 3x3 adjusted moving average, and indicator
I am fond of. When it rolled over in March, oil dropped from $58 to $47
in fairly short order.
When oil was moving up so strongly
in the summer who could have predicted unprecedented huge hurricanes striking
at the core of our energy infrastructure in the Gulf of Mexico? It's a
piling on of bad luck for the American consumer.
I believe the price of oil has already
adjusted for a worse case scenario. Therefore, a few calm weeks could lead
to a significant pullback in energy prices, and the corresponding traditional
4th quarter rally in stocks. I'll be keeping my eye on the price of light
sweet crude for a serious rollover. If it happens, it will be time to get
on the energy train after a correction.
In the interim, the hurricanes have
served as a wake up call. They have showed us we are vulnerable. More refineries
need to be built, but the major oil companies won't do it on their own.
It's too costly, and could serve to depress prices. Why would they when
they can make windfall profits off current prices?
Government needs to step in. Situations
like this is what the federal goverment is for. If the Bush Administration
wants to make sure we have ample supplies of energy, they need to provide
the right atmosphere for infrastructure investment in the form of tax credits,
land grants, location availability, etc. GWB - get to work in this one.
A have a lot more hard data on future
world wide energy demand which I'll share in the next energy related edition.
|
Subscribe |
|
Information is power and timely information is profitable. Become informed and profit from OTC Journal Profiles and Trading Alerts by becoming a Preferred Member today. There is no cost associated with your email subscription.
Add your email address below and make sure to check your email inbox and confirm your opt-in request to start receiving the OTC Journal Email Newsletter on a regular basis.
To ensure newsletter delivery, you can add any additional email addresses you may have to the OTC Journal Member List. Receiving the OTC Journal Newsletter in multiple locations is the best
way of making sure you don't miss the next investing or trading opportunity! For web based email addresses, the OTC Journal recommends @yahoo.com or @aol.com for timely and reliable
email newsletter delivery.
Note: Your email address will be kept strictly confidential, and will not be shared with any other entity for any purpose at any time. If you no longer wish to receive the OTC Journal, simply follow the instructions located at the bottom of every OTC Journal Newsletter Edition.
|
