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John Wilson
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Long term buyer and holder of silver. I still have silver from when it used to be the actual US money- when it had intrinsic value. I plan to hold it and hopefully accumulate more. Began investing and charting on paper in the late 1980's (hey, a computer cost $5000 then). On Gold: it's not that... More
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  • Buy Signals Developing In MREIT Sector After Eight Months Decline

    Mortgage realestate investment trusts or mREIT ETFs peaked twice in 2014. Once in June and again in September. After the September peak they sold down.

    I will begin by focusing on the ETF, iShares Mortgage Real Estate Capped (NYSEARCA:REM)

    This ETF or Exchange Traded Fund, seeks to track the investment results of an index composed of U.S. real estate investment trusts ("REITs") that hold U.S. residential and commercial mortgages. It is the best representation of the mREIT sector and I first of all watch this to see what the sector is doing before I buy an individual mREIT ETF.

    REM hold 37 mREITS. The largest two holdings are (NYSE:NLY) and (NASDAQ:AGNC). It is a very full basket that represents the mREIT sector with only a .48 expense ratio. Daily volume is a little over 1M shares a day.

    Here is a chart picture of what it and the sector has done in the last eight months. As you can see, it has been downhill.

    (click to enlarge)

    This chart shows the June and Sept peaks that occurred in the mREIT sector as some of them had cut dividends previously. However, REM paid a larger dividend in Dec '14, than in Dec '13. The market seems to be saying the decline is over.

    Note that the price on this chart has popped above the short term 9, 18 and 36 day averages.

    Year 2014 price history:

    REM high: 12.94, January low 11.59, which is a 10% decline overall. Not a disaster but enough to make it more attractive with the price decline. Did it cut the dividend? The June and September 2014 dividends were lower than those in 2013, but the December 2014 of 0.595 dividend was actually higher than the Dec 2013 dividend. of 0.477.

    Oh, and the Distribution Yield TTM: 14.59%

    Here is a short term chart using a 3-day EMA with a 22 day simple MA showing a pretty good buy signal in this time frame.

    (click to enlarge)

    Both price and the 3 day EMA are clearly above the 22 day MA after an apparent bottoming process. A very positive picture. Possible price gains while earning a 11.7% dividend yield.

    Other mREITs are in virtual buy signal too.

    Invesco Mortgage Capital Inc. (NYSE:IVR), is just showing a hint of a short term signal. It is so close...

    (click to enlarge)

    The chart above shows a 3 day EMA (exponential MA) with a 22 day Simple MA. This is used for short term signals and may be used to enter when there has been a correction. This was at least an intermediate correction of more than 10%.

    When the price and the 3-day EMA cross over the 22 day average, it is a short term buy. This signal gets you in sooner than if you waited for it to eventually cross the 50 day MA. You can also use this cross-over to exit a position. The price and two averages have just converged. Another day or two of small upside will give a confirmation.

    I just re-bought IVR, as I had previously sold at $17.60 and was re-buying at 15.27. (IVR) has a11.7% yield.

    Another one is (NYSEARCA:MORL), UBS ETRACS Mthly Py 2xLvg Mortg REIT ETN

    (click to enlarge)

    (click to enlarge)

    This is so close: it looks like a signal with the 3 day just barely going above the 22 day, but compared to the 6 month chart of MORL above, the price is going to hit the 40 to 50 day average level and fall back - maybe. It does look like the lows have been put in though. MORL is 2X leveraged and the Distribution Yield TTM is 22.92.

    (MORL) is not a stock or ETF. It is an ETN which is like a note or bond issued by a bank. It is leveraged as I said. Here is a SA article by Lance Brofman, UBS Leveraged ETNs: Separating Fact From Fiction, for a good discussion of MORL and CEFL, two UBS leveraged ETNs.

    Finally there is an ETN that represents closed end funds or CEFs. This is another UBS ETN symbol mentioned above, (NYSEARCA:CEFL), for

    UBS ETRACS Mthly Py 2xLvg Closed-End ETN

    (click to enlarge)

    I like how the 3day EMA has moved above the 22 day MA and is slowly up-trending above it, following the gradually climbing price.

    It also is 2x leveraged and has a yield of 21.72%. Both MORL and CEFL pay monthly distributions. CEFL is less volatile compared to MORL. Look at a variety of charts for MORL and you will see pretty sharp swings. It does also have higher daily volume of 276,000 than CEFL of about 144,000 sh/day.

    I have held MORL before and the income is really nice. I wouldn't make a whole portfolio of MORL and CEFL though. I do already own REM and IVR and am allocating about 15% of y portfolio to mREITS.

    Tags: REM, IVR, MORL
    Feb 22 11:45 PM | Link | 7 Comments
  • SeaDrill Limited: High Yield, But Is It A Buy Yet?

    Preface to readers:

    I submitted this initially as a Premium Article, but it was rejected because my discussion of US sanctions against Russia was considered too "political" and "charged." Since the article is still timeley and some people actually like to read points of view that are political and charged, I am putting this up as an instablog. It does represent a point of view that has not been presented before in the SDRL articles I have read. I may neuter parts of it and resubmit it again, but I thought there would be people who would like to read it the way I wrote it. Thanks

    JW, 11/13/2014

    ARTICLE AS SUBMITTED NOV 8:

    SeaDrill Limited (NYSE:SDRL) because of its low price, low PE and high yield may be considered a "buy" here by value investors, but lower oil prices have pressured the oil services sector lower and this may continue for the near term. Also financial sanctions against Russia are a continuing concern and may also be ratcheted even tighter. These sanctions may restrict SeaDrill and other companies such as Exxon (NYSE:XOM) from providing off-shore drilling technology in the Russian arctic area. In this article I will look at the obvious value of SDRL at these levels and also explain the negatives and concerns.

    While researching this article though, I moved from the position of an enthusiastic buyer to that of a cautious and possibly short-term buyer. I confess that I bought shares on 10/29 at $23 believing the bottom was in and them sold on 11/4 after Seadrill dropped below $22. The $22 level was near term support for me, and I did not like that it moved below that level.

    I will divide this article into two sections:

    A. Value

    B. Concerns

    VALUE.

    SeaDrill appears to have very appealing value, but it still is acting like a "falling knife."

    SeaDrill has dropped so sharply in such a short time that many investors would still place SeaDrill in the falling knife category. Also, many investors will not initiate a buy on a stock that has declined this way until it has already turned around and gained back much of what it had lost. Then they feel "safe" about buying it because the concerns about the stock have been resolved, but by this time it has regained much of what it had previously lost. They just don't want to be the first to jump in.

    Investing involves risk. You do not really eliminate risk when buying after other investors have already bought and bid up the price. It would be tempting to lock in a 20% yield especially if it is proven "safe" by future events.

    I really don't try to catch a falling knife. What I really try to do is to judge when it has just stopped falling: when its downward momentum is about played out and it's ready to stabilize. I look for value factors such as a low PE and/or high dividend yield. I also try to confirm that there is a good chance the decline may be ending. I look for long term support levels or psychological levels for the price where the decline is likely to halt.

    A stock with a PE of 2.66 (forward PE 7), and a dividend yield of 18% and has lost 50% in 4 months and has held near recent lows for over three weeks - may just be a good buy. These are the basic reasons SeaDrill seems attractive here.

    Brief price history of SeaDrill

    Recent high: June 23, 2014 at $40.44

    Recent low, November 4, 2014 at $20.21

    Lost $20.23 in the decline from 6/23 to 10/10/2014, which is a 50% decline .

    PE 2.56 (forward 7), Yield 18%

    SeaDrill Limited price as of November 7, 2014: $21.77

    I first took notice of SeaDrill in January of this year (2014). The two things that I liked was that it had recently declined from a high of $48 on Sept 19, 2013 and in January 2014 was now $35 and yielding about 10%. There was concern that the dividend would not be sustainable. There is always that fear with SeaDrill. There was that fear when the dividend was 8% in 2013, now in October 2014 it is 17%. Did the dividend go down any? No it went up, increasing over 10% from $0.91 in Sept '13 to $1.00 in Sept '14.

    However this was before the drop in oil prices and the shooting down of Malaysian Flight 17 in the Ukraine and the sanctions against Russia, but if earnings could continue to support the dividend payment it would definitely not be a falling knife anymore.

    The dividend appears safe for now according to SeaDril:

    The Board has resolved to maintain the regular quarterly dividend at US $1.00 per share. The Board had communicated earlier that this dividend level is sustainable until at least the end of 2015. - Second quarter report 2014 report p. 11

    The $1.00 dividend is currently supported by earnings of $1.29.

    SeaDrill is near an obvious level of price support based on some very simple math and very round even number levels; the $20 price level would seem to be a strong support level.

    • SeaDrill's dividend is $1 each quarter or $4 per year.
    • 20% yield: $4 divided by $20 equals 20%. At the $20 price SeaDrill would have a 20% yield.
    • 50% discount: $20 is also a nice even number. The $20 price also represents $20 decline of 50% ,a discount 50% from the summer high of June 23, 2014 at $40.44 that I mentioned above.
    • A dose of capitulation: SeaDrill hit $20.21 on November 4 and bounced from that price, but don't be suprised if it settles back to the $20 area to test it - ($20 is a nice, even number; $19 is nasty and uneven). A temporary break below $20 might put in the bottom for now.

    Many investors are noticing these obvious reasons that make SeaDrill appear to be attractive. There are questions that one would like to have answered before buying, but unfortunately, these are "unkowns" for now. Here are the nagging concerns.

    CONCERNS

    The "value" considerations are fairly obvious, but the negative concerns are a little more difficult to sort out. I will spend more space discussing them.

    The two reasons why SeaDrill went down in order of causality:

    1. Oil prices decreased significantly since June of 2013, and
    2. International sanctions against Russia may impact earnings of companies like SeaDrill and Exxon who would have provided offshore drilling technology and services to Russia.

    These two factors may be combined into one very general term: "Uncertainty:" Oil's decline was a surprise and it is uncertain how long prices may be depressed; there is uncertainty regarding the sanctions and how they will affect the company. These are unkowns.

    Though oil prices went down and SeaDrill does not produce oil, its business model,

    to own, operate and acquire offshore drilling rigs [and jack up rigs for deep sea drilling] with long term contracts. Seadrill Partners drilling rigs are under contracts with major oil companies.

    . . . is effected by the price of oil. Though oil has lost about 27% since June of 2014, it won't stay down forever. It may already have had most or all of its decline.

    Decline of oil from June highs to 11/7/2014
     June High '1411/07/14Loss
    Brent$11583.3927.5%
    WTIC$10778.4326.7%

    (11/13 note: oil made new lows today -BRENT $77.49)

    Brent Crude oil - six month chart:

    (click to enlarge)

    Chart courtesy of StockCharts.com

    For oil, that is a very steep decline in a short period of time. One thing you could say is that most of the decline is likely to have already occurred. It has leveled off since late October, but that does not mean it is going back up anytime soon.

    The relationship between oil prices and the revenues of the drilling sector is explained in the SeaDrill 2013 Annual Report:

    Declines in oil and gas prices for an extended period of time, or market expectations of potential decreases in these prices, could negatively affect our business in the offshore drilling sector. Sustained periods of low oil prices typically result in reduced exploration and drilling because oil and gas companies' capital expenditure budgets are subject to cash flow from such activities and are therefore sensitive to changes in energy prices. These changes in commodity prices can have a dramatic effect on rig demand, and periods of low demand can cause excess rig supply and intensify the competition in the industry . . .

    Does anyone think that oil will keep going down as gold has gone down? Its very unlikely. But oil could hold at lower level for months before supplies tighten again and prices climb. The OPEC nations have their price floors that they are willing to accept - they, especially the Saudis, need a certain price level or they will run a deficit. However I am not going to try to make a prediction about oil here, except that it looks like it has halted its decline here- or may decline more slowly (maybe even rebound). The decline of oil producers and oil service and drillers has roughly mirrored the oil price decline.

    SeaDrill chart: It seemed to be holding at $22 from 10/10 until 11/3, then fell below $22 and hit its most recent low of $20.21.

    (click to enlarge)

    No clear bottom yet. Broke below $22 on 11/4. As of 11/7 has yet to get above $22 again.

    [11/13 note: SDRL restested & made new low of $20.20 then rebounded on high vol. as oil made new lows]

    Will SDRL stop falling? Maybe it already has. Will it go up? The 18% yield will be attractive, especially if the general market holds up. Especially if SeaDrill's earnings are steady and support the dividend. Earnings will be released November 26th.

    How can I know if SeaDrill is likely to go up? What other clues are there that SeaDrill has bottomed? This is what I ask when I am about to catch a falling knife at the bottom of its trajectory and before it has rebounded:

    • If possible, know what the price of oil is going to do. (this is my comic relief), or at least have a reasonable conviction that oil may have bottomed and supplies may be expected to tighten;

    • Compare it with another similar company. In this case I am comparing with Transocean Ltd (NYSE:RIG). RIG also appears to show signs of having bottomed. It's still in the bottom range though;

    • Compare it with an ETF that represents the industry that your company is in: SPDR S&P Oil & Gas Equipment&Svcs ETF (NYSEARCA:XES). XES looks like it bottomed on 10/15/14 and is showing signs of turning up. (SDRL is not a major holding of this fund, but RIG is;)

    • Compare it with a company that represents oil producers. I am looking at Exxon . XOM actually HAS begun to advance after falling from $105 on July 29 to about $87 on Oct 15. (five days from SDRL 10/10/14 low;)

    • Consider total stock market action. If the market is currently in an uptrend, it should be supportive of out-of-favor sectors. It may be a possibility that this sector will be the next sector the market will rotate into, especially if there are low PEs and high dividend yields where other stock sectors may be overbought with high PEs and low dividend yields;

    • Summarizing these comparisons, the Oil producers and Oil Services sector fell off (with oil prices) after highs in June of 2014 and have made possible bottoms in the October 10 to Nov 7th timeframe. These companies may be making a low but have not turned up much as of this writing. The general market is currently in an uptrend and is approaching record highs. These considerations are supportive of the case for SDRL's bottoming It is time to watch carefully to determine if this sector is bottoming or getting ready to drop another notch down.

    • [11/13 note: SDRL & RIG did make new lows but rebounded strongly.]

    See comparisons on chart below,
    with comparisons; RIG, XES and XOM

    (click to enlarge)SeaDrill compared with RIG XES and XOM

    Chart: SeaDrill is HLC bars; RIG is Magenta overlapping SDRL; XES is Lt blue line in middle; XOM is the highest (purple) line turning up.

    RIG is more stable than SDRL and shows more evidence of leveling off. XOM may follow the general market more than SDRL and RIG. XOM is showing signs of turning up. Major producers may have just hit bottom and may be turning upward as XOM is showing.

    CONCERNS: What could drive SeaDrill lower?

    Discussion: Sanctions.

    The sanctions imposed on Russia by the US and the EU are intended to prevent US and EU companies sharing technology and helping Russia to develop offshore arctic oilfields. The US is actually pushing the EU (as if it was the EU's idea) to impose sanctions against Russia. These newest sanctions are being imposed after Malaysian Flight 17 was shot down over the Ukraine in July and the US immediately blamed Russian backed rebels for shooting down Flight 17. EU under pressure to broaden Russia sanctions

    It is very possible these sanctions will not be lifted. Flight 17 was just the pretense-trigger for the sanctions. It is unlikely Russian backed rebels shot it down. The real reason for the sanctions is the same reason the US intervened in Libya to overthrow Ghaddafi and also wants to depose Syrian president Assad - the petro-dollar convention.

    This is an economic war being waged by the US against Russia. Sanctions may not be lifted and Russia may retaliate against the EU by withholding gas this winter. We will not have to wait long to find out. The sanctions could continue just like the sanctions against Iran continue now since being imposed in 2007.

    This is an "unknown." If the EU relents in its sanctions (bucking the will of the US) against Russia, then SeaDrill and Exxon may not be impacted and earnings may not be harmed.

    Discussion about Sanctions

    Where do sanctions come from? That is who puts them on? Who decides to have sanctions? We hear the statements, "the US has imposed additional sanctions against Russia." Who does this?

    For example, you wake up one morning and see in USA Today the story title,

    "U.S. to impose new sanctions on Russia, Obama says."

    WASHINGTON -- The United States will impose a new round of sanctions on Russia on Friday, joining the European Union in ramping up pressure on Russian President Vladimir Putin over the Russian presence in Ukraine.

    President Obama said the broadened sanctions will target Russia's financial, energy, and defense sectors. USA Today. Sept 11, 2014

    So you wonder, "who did that? Did my congressmen who I elected do that? Or did the President who was elected do this? Or, did the State Department do this?" No, the answer is that an unelected and unaccountable individual with ties to the banking industry, who holds the highest US Treasury office, determined the sanctions.

    It is the US banking and finance arm (or tentacle) of the US government - the Treasury that imposes sanctions and has imposed sanctions on Russia.

    Treasury Secretary Jacob J. Lew today [Sept 12, 2014] made a determination under E.O. 13662 that persons operating within Russia's defense and related materiel sector may now be subject to targeted sanctions. . . Announcement of Expanded Treasury Sanctions within the Russian Financial Services, Energy and Defense or Related Materiel Sectors

    Secretary of the Treasury Jacob "Jack" Lew, a member of the Council On Foreign Relations, and member of the Brookings Institution, and who has never been elected to an office in his entire life "determines" the sanctions. One may be sure though that he does not do this on his own; the sanctions are devised by people in the highest levels of these think tanks (not the government). That is who is making the decisions that effect your investments. Obama simply holds a press conference and reads a script that says that "we" have imposed sanctions. When he reads the script that the US has imposed sanctions you are supposed to think subconsciously,

    "We are all on-board with this. The 'US' means all of us."

    The truth is "we" had nothing to with putting on the sanctions, and they care nothing about democracy or human rights in Ukraine. They would like to see Ukraine be a member of NATO though. Speaking of NATO, why does it still exist? Isn't the cold war over? The cold war may have ended with the fall of the former Soviet Union, but a new hot war, a "Financial war" has taken its place against Russia. The US Treasury is waging the war, and it is about Russia and China and other nations daring to abandon the Petro-dollar convention.

    Your investments may suffer "collateral damage" in this financial war.

    Ever-increasing Sanctions

    The US Treasury 9/12 press release also states,

    Today's actions demonstrate our determination to increase the costs on Russia as long as it continues to violate Ukraine's territorial integrity and sovereignty," said Under Secretary for Terrorism and Financial Intelligence David S. Cohen. "The United States, in close cooperation with the European Union, will impose ever-increasing sanctions that further Russia's isolation from the global financial system unless Russia abandons its current path and genuinely works toward a negotiated diplomatic resolution to the crisis."

    Despite the severity of these actions, Treasury maintains significant scope to expand these sanctions, and impose additional sanctions, against individuals and entities under the authorities of Executive Orders (E.O.) 13660, 13661 and 13662 should the Russian Government not take steps to de-escalate the situation in Ukraine. Announcement of Expanded Treasury Sanctions

    The Treasury above talks above about "ever-increasing sanctions" and "scope to expand and add additional sanctions," as if this is what they are planning on doing anyway. The sanctions may not be going away anytime soon.

    My take on US/EU sanctions:

    Pissing in the pool - Not trying to be vulgar - as this term is in the Bible - KJV, I Kings 14:10 "I will bring evil upon the house of Jeroboam and will cut off from Jeroboam him that pisseth against the wall."

    The US (Lew, Obama, Et Al) imposing these sanctions is like a gang or clique of boys at a swimming pool, standing at the edge of the pool and pissing in the pool toward another kid that they don't like. They don't care about the other kids in the pool. Their actions spoil the pool (financial and investment markets) for everyone. They expect everyone to be okay with sanctions just because they decreed them.

    CONCERNS: The drop in the price of oil

    Saudi Arabia may not be able to balance its budget if it allows the price of oil to drop below $80. Yet the price declines are a direct result of Saudi Arabia cutting its oil price. Saudis cut prices most recently Oct 1 and Nov 4.

    World oil prices in the lower $80 range would be economically damaging to Russia's finances. Saudi Arabia has been accused of manipulating oil prices downward by cutting its prices. Reasons given for this include an internal OPEC price war, competition with US shale oil producers, but one reason that you will not see reported is encouragement from the US to put the squeeze on Russia. Russia relies on higher oil prices.

    Russia's 2015 budget, based on prices averaging $100 per barrel, and the government may be more willing to negotiate on ending interventions in Ukraine to avoid the sanctions imposed by the US and the EU. Yale Global Online.

    Why would the Saudis intentionally lower the bid price for oil? They need higher prices too but they also support the rebels who are trying to overthrow the Assad government in Syria which Russia supports. Russia is a competitor with the Saudis in both the EU and Asian markets. The Saudis may have been called upon to help the price of oil fall lower to inflict pain on the Russians along with the US/EU sanctions.

    Possible negatives going into 2015:

    • Lower oil prices may be with us going into 2015 (new lows 11/13);
    • sanctions continue, are possibly expanded;
    • the Saudis continue to keep pressure on Russia with lower oil prices.;
    • worse yet there could be an OPEC price war.

    If the negatives of low oil prices and sanctions against Russia continue longer into the first quarter of 2015 SeaDrill could drop below $20.

    Conclusion: Once again, don't be bothered by the "catching a falling knife," criticism. Just try to have a reasonable opinion that a short term bottom may have been made based on both fundamental and technical factors. Be ready to change your position if the main factor - the price of oil does not improve.

    Someone will buy at the bottom. Why shouldn't it be me (or you)?

    PS. today 11/13 SDRL and RIG make new lows and rebounded or at least bounced real good on high volume as Brent and W TX crude fell to new lows. Looks like lower oil prices ahead.

    PSS. wrote this a week ago and after one week of market activity it was not necessarry to change any of my views even as oil fell lower. Only the charts could be updated.

    Tags: SDRL, RIG, Energy, Dividend
    Nov 13 8:50 PM | Link | 2 Comments
  • Falling Knife Value Portfolio - Buying SeaDrill

    FALLING KNIFE (Value) Portfolio Warning:

    You will always be made to look like a fool when you do this. You will be laughed at for "Catching a falling knife." I took the expression "falling knife" from late 2012 and 2013 usage when gold sold down after peaking in 2011. I try to spot bottoms as a trading exercise. I joked with another commenter on a blog about creating a falling knife" portfolio after successfully buying an issue (NYSEARCA:MORL) that had bottomed. Now, here it is.

    I really don't try to catch a falling knife. What I really try to do is to judge when it has just stopped falling: when its downward momentum is about played out and it's ready to stabilize. I look for value factors such as low PE and/or high dividend yield. I also try to confirm that there is a good chance the decline may be ending. I look for long term support levels or psychological levels for the price where the decline is likely to halt.

    I used to work as an electrician. Electricians don't really handle live wires. You shut off the power first before you grab the bare wire with one hand and happen to be holding onto a copper water pipe with the other hand. That's an analogy. I don't try to really buy something when its falling fast, but I may buy it when it looks like it is about done falling, while others may still be calling it a "falling knife" and heading lower in a in a down-trend. The market thinks just because it has fallen 40% of 50 % that it must keep on falling. It just has to continue what it has been doing (falling). That's why the rating services will give the lowest ratings to stocks that are the best values - because they have declined and have had poor (past) performance. The stocks that have had the highest (past) performance, will get the best ratings. This may sometimes be the time to sell.

    Hey, a stock with a PE of 2.69 (forward PE 7), and a dividend yield of 17.47% and has lost 45% in 4 months and has held at recent lows for about three weeks - may just be a good buy. Yes that was a PE of two point six-nine

    I am referring to a particular company that I sold last June at $39.90 and am buying back around $22 to $23. I am referring to SeaDrill Limited (NYSE:SDRL).

    Initiating October 30, 2014 SeaDrill Limited (SDRL),10/30/2014 price at $22.68

    June 24, 2014, high $40.43

    October 10, 2014 low $22.16,

    Lost $18.27 in the decline from 6/24 to 10/10/2014, which is a 45% loss .

    PE 2.69, Yield 17.47%

    I first took notice of SeaDrill in January of this year (2014). The two things that I liked was that it had recently declined from a high of $48 on Sept 19, 2013 and in January 2014 was now $35. and yielding about 10%. There was concern that the dividend would not be sustainable. There is always that fear with SeaDrill. There was that fear when the dividend was 8% in 2013, now in October 2014 it is 17%. Did the dividend go down any? No it went up, increasing over 10% from $0.91 in Sept '13 to $1.00 in Sept '14. What will happen to the price if earnings continue to support the dividend payment? It would definitely not be a falling knife anymore.

    One reason SeaDrill went down is because oil prices went down. But SeaDrill does not produce oil, it provides oil platforms for deep sea drilling. Oil won't stay down forever. It may already have had most or all of its decline.

    (click to enlarge)

    Chart courtesy of StockCharts.com

    Does anyone think that oil will keep going down as gold has gone down? Its very unlikely. However I am not going to try to make a prediction about oil here, except that it looks like it has halted its decline here. The decline of oil producers and oil service and drillers has roughly mirrored the oil price decline.

    SeaDrill chart: note that in the last 20 days it has not been falling.

    (click to enlarge)

    My initial purchase, from Interesting Times blog comment:

    2/12/2014. I got my (SDRL) limit order filled today. Bought 100 at 35.35 which was .10 off the bottom. The price actually spiked down to allow me to buy in and then kindly when up after my order was filled. If I had been actively watching it I would have for sure pulled the trigger at a much higher price. Yield: 10.3% seekingalpha.com/instablog/5038891-inter...

    It went a little lower after that hitting $35. but then turned up went to $40. I sold at $39.90 on June 20. On 100 shares the proceeds would be $3990. Today the $3990 will buy 170 shares at the $23 price with some change left over. My transition was from 100 shares to 170 shares with the same amount invested.

    Will it stop falling? Maybe it already has. Will it go up? The 17% yield will be attractive, especially if the general market holds up. Especially if SeaDrill's earnings are steady and support the dividend. Earnings will be released November 26th.

    How can I know if SeaDrill is likely to go up? What other clues are there that SeaDrill has bottomed? This is what I ask when I am about to catch a falling knife at the bottom of its trajectory and before it has rebounded:

    • Compare it with another similar company. In this case I am comparing with Transocean Ltd (NYSE:RIG). RIG also appears to show signs of having bottomed. It too may even be turning upward.
    • Compare it with an ETF that represents the industry that your company is in: SPDR S&P Oil & Gas Equipment&Svcs ETF (NYSEARCA:XES). XES looks like it bottomed on 10/15/14 and is showing signs of turning up. (SDRL is not a major holding of this fund, but RIG is.)
    • Compare it with a company that represents oil producers. I am looking at Exxon (NYSE:XOM). XOM actually HAS begun to advance after falling from $105 on July 29 to about $87 on Oct 15. (five days from SDRL 10/10/14 low).
    • Consider total stock market action. If the market is currently in an uptrend, it should be supportive of out-of-favor sectors. It may be a possibility that this sector will be the next sector the market will rotate into, especially if there are low PEs and high dividend yields where other stock sectors may be overbought with high PEs and low dividend yields.
    • Summarizing these comparisons, it seems the Oil Sector and Oil Services sector fell off after highs in July of 2014 and have made tentative bottoms in the October 10 to 15th timeframe. These companies show evidence of turning up. The general market is currently in an uptrend and is approaching record highs. These considerations are supportive of the case for SDRL's bottoming.

    Year to Date, SeaDrill SDRL 10/10/2014 close $23.00

    with comparisons; RIG, XES and XOM

    (click to enlarge)

    Chart: SeaDrill is HLC bars; RIG is Magenta overlapping SDRL; XES is Lt blue line in middle; XOM is the highest (purple) line turning up.

    Conclusion: Once again, get used to be criticized for "catching a falling knife," but become expert at analyzing the trajectories of falling knives and calling the bottom based on some fundamental and technical factors.

    Someone will buy at the bottom. Why shouldn't it be me (or you)?

    Tags: SDRL, Energy
    Oct 31 1:19 AM | Link | 5 Comments
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