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INDEPENDENT Financial Advisor / Professional Investor- with over 30 years of navigating the Stock market's "fear and greed" cycles that challenge the average investor. Investment strategies that combine Theory, Practice and Experience to produce Portfolios focused on achieving positive... More
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  • 2015 - Mid Year “Energy” Update

    Events continue to remain interesting in the E&P world, as the recent WTI retracement to $50 has oil bulls double-checking their reasoning for a continuation of the rally we've seen since the March 17 bottom earlier this year. While the bears pump up their negative "contagion "stories.

    It needs to be stated that I do not summarily dismiss the "oil bears" as many have been correct on this ongoing situation. However, I am not ready to buy into the their "contagion" fears. This has kept the market jittery on supply concerns and a bottoming U.S. rig count.

    There are a myriad of Conflicting Signals Still out there when it comes to the Crude Oil story While the bull run in the U.S. dollar has finally lost some steam, many bearish factors remain in place for oil. Supply, as exemplified by both worldwide and domestic production, remains high. Saudi Arabia has increased production in excess of 10.5 MMbbls/d, while U.S. output has held much more resiliently than many expected, given the very steep capital expenditure cuts we saw earlier in the year. Iraq has also surprised the market with current production at 4.4 MMbbls/d. The recent pullback in oil has coincided with an uptick in U.S. rig counts, as operators have begun to feel more comfortable with price expectations and their cost reductions have helped.

    Efficiency gains have also boosted output per well drilled, keeping production from falling in tandem with the aforementioned rig count cut.

    Unlike those that like to run around and play the fear game as they play the headlines to run their "stories", I'll put out an opinion and a scenario for "investors" to follow. Before I go any further, the following will be the 'story that I will be following going forward.

    I envision an average of $55/bbl for WTI for the year, $70 longer term (2016), with a $7 WTI-Brent spread. While obvious, it's worth noting that the value of most E&P stocks is highly contingent on the long-term outlook of oil.

    Far too many are following the day to day pricing of WTI, then drawing conclusions from that. That is not the way I would approach the situation from an investor's viewpoint.

    So what does that suggest for investors at this point in time ?

    In looking at short term models, involving "Price" and "timing" The proprietary short term E&P Timing Model that I use has moved into oversold territory to an extent I have not seen in years. Perhaps going all the way back to 2011. It should be noted that an oversold or overbought condition can last for a while.

    That model projects which E&P stocks appear to be oversold or overbought relative to oil and gas price movements to help identify entry and exit points into the space.

    It combines quite a few different factors and includes a 14-day Relative Strength Index (RSI), a common technical indicator for when stocks are overbought (70 or more) or oversold (30 or less). While not suggesting the long term fundamental situation has changed, the recent movement in oil and E&P stocks has triggered signs that Long term investors should start to look into select names on the space.

    The main question that investors need to address regarding the E&P space going forward is one that may not be easily answered.

    Of course this will spur debate from both sides of the fence. The bearish view is that these issues are 'cast in stone" as some actually believe the entire U.S. E&P industry is in question .

    The arguments are now going from the " sublime" to the "ridiculous". it is that "sentiment" that has peaked my attention. These 'wizards" haven't called anything correct for years.

    What portion of the current cost reductions are cyclical versus secular in nature? Rig count, not oil/gas prices, will be the main determinant of well costs and as such should be monitored by E&P investors with diligence.

    Although I do not dismiss that the sector is in the grips of a bearish outlook, I maintain there are stocks for investors to start to add to a watchlist.

    Those exemplifying strong balance sheets, premium acreage, healthy debt-adjusted production growth, and prudent management teams that will identify and unlock long-term value from underlying assets. Yes , there are names that are out there that fit that description and I put an emphasis on the Debt/ Capital ratio that these companies possess.

    Sure there will be bankruptcies in the E&P sector, and the naysayers will continually harp on those names, but put that in perspective. That is the typical "run with the headlines" and sell some more fear approach that 'investors" need not listen to.

    The names that I put forward now in this list , fit the description and are the results of the model that I outlined above.

    A note of caution- This is NOT a call to go out and rush into these names, it is simply a starting point.

    So I suggest market participants follow a simple rule.

    WAIT until they show some signs of strength and break their downtrends, then review your list for potential candidates to add.

    The people putting forth the contagion stories will highlight a name like Goodrich (GDP) petroleum or Petroquest (PQ) with their high debt loads as the poster children for the entire shale industry. Such myopic thinking will usually miss the opportunities that may be out there when it comes to this and any other sector that falls into a despised category.

    In addition to the names that made my favorites list, there are a host of companies in the space with debt ratios less than 35%.

    It is just more of the same, the "headlines" come out, the blinders go on and the entire sector is whitewashed with the same brush.

    Refuse the notions that are out there that the U S shale industry is going away and perhaps listen to one of the foremost experts in the oil industry Fadel Gheit, an Oppenheimer analyst. The last time I listened to him he was suggesting all to buy BP after the Gulf oil spill @ $25, the stock is now $39 and yields 6%

    Best of Luck to all !!

    Jul 24 3:04 PM | Link | 11 Comments
  • Apple (AAPL) A Common Sense Approach On What To Do Now.
    • Apple reports in-line earnings and in-line revenues on July 20th.

    • The earnings report "disappoints" some, and the result is a "sell off" in the shares.

    • Investors will be inundated with data and analysis in the days and weeks to come.

    • A variety of opinions will be put forth, creating confusion for the average investor to overcome.

    I won't bore anyone with endless paragraphs of fundamental data on AAPL that market participants can gather from any number of reliable sources. Investors will then be bombarded with a myriad of opinions on what to make of yesterday's earnings report.

    Opinions are like 'noses", everybody has one. Instead, I decided to pose a set of questions, rather than offering 5 paragraphs of data points to prove or disprove a reason to buy, sell, or hold the shares of AAPL.

    However, I will start by suggesting that any investor or would be investor of AAPL, read the information from "the source" as it was reported in their recent conference call transcript.

    Here are some simple questions to get us started on making a decision.

    Based on the recent earnings report, Do you believe the fundamental story is over for AAPL at this point in time?

    IF you said yes" then simply move your cursor to the upper left of your web page and click on the "back" arrow to return to the SA homepage and enjoy your day.

    If you said "No", then please continue reading, there may be more that could be of importance to you here.

    Do you believe that we are in a "bull"market ?

    In this case if you said "Yes", please continue.

    If you answered "No", then once again, proceed to whatever you were doing before you stopped here and enjoy a wonderful day.

    Do you believe AAPL will enter its own Bear market within the context of the bull market backdrop ?

    If you answered "Yes", you can stay, as I have learned that "anything" is possible when the market acts irrationally.

    If you answered "No", you will definitely want to continue to digest the information in the remainder of the article.

    So far, very simple questions that lead me to present this picture.

    AAPl 7-22-15.png

    The current daily chart at the start of trading today reveals the following facts, not opinion.

    • The old closing all time high on AAPL is $133.13.

    • The intraday low on AAPL since that high is $119.22 or a 10.5% correction

    • The 200 day MA of that recent low was $118..22

    We can also conclude that as of today the Long term trend is still in place.


    I will put forth a few different strategies that one can put in play at this point in time.

    For those that do not believe or do not care about the Long term story on the stock;

    Buy the shares at $124, and set your 'mental stop loss" at the recent low of $119. You downside is limited to $5 or 4%. If the uptrend stays in place, stay with the trend until it is broken or until you decide to take profits.

    There may be some investors that are cautious, but may want to get involved and see how the short term price action plays out :

    Buy the stock @ 124 , then sell the September call options with a strike price of $125. As you can see they can be sold for $3.83

    AAPl Sept calls.jpg

    If the stock does rebound a bit and is called away at the middle of September, you will receive 3.4% for the two month holding period. More importantly if you are the cautious type, then you have lowered your cost to ~ $120.

    I will now interject another fact that could play into that strategy

    • The 200 day MA is currently $120 and rising, creating a possible floor for the stock

    Please note that there are a myriad of scenarios available using options if one want so use them to protect your position. This is but one example of how to proceed. Also keep in mind this is a fluid situation and the price of the underlying options will of course mirror the price of Apples stock.

    Now for those that are intrigued by this opportunity as shares have fallen 5% or so, simply purchase the shares.

    Your purchase gives you a stock at a multiple that is below the overall market, and you collect the 1.6% dividend, that has the chance to be increased for years to come. To support that view, it's time to note that AAPL has 203 Billion in cash on hand.

    (click to enlarge)


    Lets get back to that question of AAPL entering into its own bear market. For that to happen, AAPL would need to drop 20% from the $133 high or $26 to $107. As mentioned anything is possible when a situation becomes irrational. Hence the reason that I told all who answered Yes to that question to indulge me while I present additional facts and not opinion.

    Now I will give an opinion, and state that the share buyback program will provide a floor under the stock price. My thoughts are that Apple executives will be buying back shares hand over fist if the price should drop to the low levels I just mentioned.

    Of course the other strategy to employ, if one has a nice gain and wishes to sell now and move on because they believe the Long term story is over is certainly one to consider.


    In the next few days we will all be inundated with non stop coverage and analysis of AAPL. Reams of data for investors to sift through. I took a lot of the initial data that is out there and meshed that with my simple common sense approach to the situation as I see it. That produced the ideas presented here today on how to proceed now if you own or are thinking of owning Apple shares. Surely there will be more strategies that could be employed as this situation unfolds over time.

    Full disclosure, I have owned AAPL shares for quite some time with a position that I scaled into at the pre split price of $390 ( $55 post split), I then added sharesearlier this month at $119.98.

    Since I have a large position in place, I will now monitor the price action and at the moment I am inclined to add shares then write upside calls against that block of shares.

    All should proceed with what makes them comfortable but will add that at times over analyzing the situation leads to confusion and poor decision making.

    Best of Luck to all !

    Jul 22 6:35 PM | Link | 12 Comments
  • Nasdaq Update - It's Time To Be Logical

    A picture is worth about 7 more paragraphs of my ramblings

    Can anyone see the pattern here ?

    When the Nasdaq hits new highs (green arrows) and accelerates away from the ascending MA, becoming overbought, a funny thing happens. It corrects, falls back and consolidates before making an attempt at another new high.

    The media, pundits and anyone that can spell QQQ are already proclaiming what effect AAPL may have on the markets after reporting earnings today.

    So if THIS new high is now determined to be a "sell signal", suggesting that the Nasdaq is "rolling over" then one HAS to assume the same logic applied in Dec 14, Jan '15, Mar '15, Apr '15, June "15 and now July '15.

    Using that convoluted logic would then further imply, that one disdained the Nasdaq since Dec '14, 400 points or some 8% ago.

    Worse yet, and much more harmful, implying that one should short the index, because it was deemed to be "rolling over".

    Perhaps I can go back further in early '14 and demonstrate larger gains that would have been left on the table using this wrong footed approach to the markets.

    What may happen to the Nasdaq in the coming days, weeks, as it shows weakness from an overbought condition here, is quite a normal event within the context of a bull market.

    And therein lies the issue, as some don't give any credence to the backdrop of a bull market and what effect it does have on price action.

    Of course one could always tell me that THIS time is different.

    It may be time for a breather, but this isn't the last high we will see on the Nasdaq.

    Best of Luck to all !

    Tags: AAPL, Nasdaq
    Jul 21 8:52 PM | Link | 2 Comments
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