Anadarko: Down But Not Out

| About: Anadarko Petroleum (APC)

Anadarko (NYSE:APC) is interesting for several reasons. They will in all probability be the object (victim) of the upcoming window dressing which always seems to emerge at the end of quarters. The fund managers will be mimicking Neiman Marcus at Christmas. They will engage in that deceptive practice to give the appearance of being in the right stock even if at the wrong time.

For the sake of clarity, I am not implying that fund managers will be flocking to Anadarko. I believe quite the opposite is true. They will be liquidating their positions in Anadarko because it has been on a steady decline since March 16. If ever there was a smoking gun in the room it is the date of March 16.

That was the day the Designated Market Makers in many issues (Anadarko included) established a very important merchandising stance. It was the precursor for the trend reversal. Nothing moves unless something happens. In this case, the something that happened was: many large blocks, in many key issues, occurring at the market top.

With respect to "Trends are your Friends": Trends are wonderful, exhilarating and they have a propensity to continue right up until they fail. Trends sometimes lull investors into a false sense of security. Not unlike cattle or sheep grazing in the pasture living a charmed existence, eating and drinking to their hearts content, right up until the day the trailers pull up and cart them off to the slaughterhouse. The big blocks and heavy aggregate volume on March 16 was the equivalent of the trailers arriving at the fence post. At that point it was just a question as to who was going to be slaughtered. I suspect that many funds were caught with their pants down because they were particularly interested and focused on the trend.

Nothing human is without self-interest. Therefore, if The Designated Market Maker does not have inventory there will not be sufficient impetus for him to advance Anadarko. He will take it lower to cover his short positions and accumulate. I suspect that phase of his merchandising is just about complete. He will be ready to advance Anadarko (in earnest) once the window dressing has concluded.

The irony is that the artificial demand in the issues to which the funds had been flocking will subside. The price of the issues will be dropped because the Designated Market Makers (in these issues) will have distributed most if not all of their inventory. In addition, they will have established short positions in their issues to capitalize on the imminent decline (they never miss an opportunity to profit anywhere in the merchandising cycle).

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There is a confluence of diverse seemingly unrelated incidents which create a perfect storm for Anadarko to be manipulated in this fashion. Most importantly I see the money trail. The old tried and true axiom of follow the money could not be more relevant. The "banksters" (a term coined by Ferdinand Pecora) know this and they know that we know it.

This leads me to believe that this trade will require close scrutiny because the market as a whole will continue to decline. The process will be conducted similar to a covert op mired in misdirection, disinformation and a filtering process to catch investors in exactly the wrong phase of the merchandising cycle.

On the Basis of the foregoing these are my views and observations:

The Trade:

I recommend establishing a long position in Anadarko. Open your position with only 1/4 of whatever capital you intend to commit to Anadarko at $57.32. Purchase the remaining 3/4 of the position at $52.73 and stop out at $50.50. Do not post your stop out. I have said it before but it is so important that at the risk of being redundant I will say it again. It is too easy for the Designated Market Maker to cash investors out by moving the price above or below your stop out and move the price right back down or up again. In addition, when a stop out is triggered it converts into a market order and that could be disastrous if the Designated Market Maker decides to really take advantage. Remember the "Flash Crash"? I would be looking to exit the trade at an upside price target of $64.33. Do not allow this position to exceed 5% of your overall portfolio. Anadarko could advance to $71.00 (easily) so it may be prudent to liquidate ½ of the position at $64.33 and exit the remainder at $70.00.

This is a trade, not an investment. Be ever vigilant.

That's it for now ... Have a nice day..

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in APC over the next 72 hours.