How Long Can the Exxon Bulls Last?

Oil did indeed finish below $67.50, just barely, and the oil sector seems to be grasping at straws here to keep from going down. As I mentioned in comments, there were 100M shares of ExxonMobil Corp. (XOM) purchased at over $70 who are already out 5%, and it will take 10 days of very heavy trading (30m shares) for just those guys to unwind.

Exxon has been above the current level since August 1st, beating the previous all-time high by $2.50 for a whole month. That’s 400m shares traded 3-7% into the red. What about short covering? Sorry, as of August 10th, only 49m shares were shorted (.8% of the float—one of the lowest ratios in the S&P).

Once you go below $60 on Exxon, you are putting 6b shares that have been traded since March of 2005 into the red. Sure there might be some people in for the long haul, but it doesn’t take more than a billion dissatisfied shareholders to give this stock some real problems. I don’t mean to pick on Exxon, as most oil companies have this problem, but come on, doesn’t $402b seem like a pretty big market cap?

XOM 6-month Daily Chart

Comments

[CrossProfit_:]

We disagree on this one. XOM may pull back to the 61/62 level but you can be sure that it will go back to 70 and to new highs of 75/76 before the end of Q1 2007.

The reason is simple. XOM has the best margins in the industry. In a previous article on SA we pointed out that XOM will continue to report higher earnings whether oil is at $85 or $65 per barrel. XOM calculates its projected earnings at $51 a barrel. As long as oil stays above this price they will continue to post stronger than anticipated earnings. This will become obvious to those who haven’t already seen the trend as soon as Q3 is reported. As a reader (Blake Allen) previously pointed out in a comment, you can use XOM as a hedge!

If there were statistical profiles on XOM buyers, somehow I doubt that they would qualify as traders. “Investors” is probably a more accurate classification.

COP on the other hand is a real gamble, could be great and even better than XOM or could kill your portfolio. If this wasn’t clear from our last article on COP in SA then we may have to write another.

Phil- Regards from Saul (my boss). He didn’t play the CHK options, just doesn’t play options. Saul prefers “boring” straight stock investments that yield over 30% annually for the sake of his grandchildren. As they say, “to each his own” or is that “there’s more than one way to skin a market”!

Disclosure: This comment was submitted by a CrossProfit analyst and reflects the official opinion of CrossProfit.com.
www.crossprofit.com

2006 Sep 08 07:24 AM

[alpha24seven:]

I disagree with your assumption that the statistical profile on XOM buyers being investors. While there is no doubt an investor basis in XOM, there is also a large number of hedgies looking for alpha in traded long positions in XOM -- absolutely no doubt.

2006 Sep 08 05:38 PM

[Philip Davis:]

Tell Saul hello... Hey I'm all for making 30% in a day and taking it off the table too (that's what annually means right?).

8-)

COP is like that test where you put your hand in a box and there is either a viper or a garden snake - not my cup of tea!

The old adage is that Exxon is worth whatever a barrel of oil is going for so it will be interesting to see what happens if oil falls off a cliff.

I should have been more clear - I'm not saying Exxon will go below $60, I'm saying if it goes below $60 you may find that the "investors" begin to seek greener pastures. Saul's grandchildren better hope that the Exxon investors aren't the same loyal folks that held onto the builders through thick and thin (for about the first 5 days anyway...).

I have my finger on the trigger of XOM calls the second oil turns back up but I hope for the sake of the economy that doesn't happen soon!

2006 Sep 09 12:40 AM