BP: Final Thoughts

By Brad Thomason, CPA

 

As you may have seen, on several occasions I wrote about the gulf oil spill and the price of BP shares back during the summer. I thought I’d make one more pass at it to sort of officially close the storyline.

My last post about BP was on July 9th, in which I pointed out that there were still a lot of question marks out there, and that a rapid recovery in the price might still be a ways off. The stock has moved higher since then, but certainly not back to pre-spill levels (it’s still 20+ points lower). It has put in a nice gain, but the market is higher overall since that time too, so it gets difficult to determine causality at times.

But here’s what we can say: BP is no longer in the news every day. The level of rancor is down. They have a new CEO. They’ve paid lots of claims, held dividends back to assure adequate cash, and sold assets to create even greater liquidity. Washington has moved on to other problems, and even though there will be lawsuits dragging on for years to come, all of this has sort of turned into yesterday’s news.

Which may be good news for the stock. Because with the circus now moved on to the next calamity, the stock can start acting like a normal stock again. In fact, I looked at its chart today, and there’s an interesting story shaping up there. Since I’ve been so negative and cautionary from the beginning, I thought I should share with you what may actually be a positive situation in the making.

The 2 things that struck me are the shape of the chart and what the stock price did today relative to the broader market.

Contrary to popular belief, chart reading is not voodoo. It’s simply an acknowledgment that sometimes human patterns of behavior repeat themselves, and a graphical representation of price moves often shows that better than anecdotal reports. My unofficial conclusion, drawn from >15 years of studying such charts, is that they can in some circumstances be predictive of what’s going to happen as much as 90% of the time. As for the 10% of the time when they don’t work, it’s almost always due to some substantial news event that comes unexpectedly into the picture. Since such occurrences will always be a possibility, chart reading will never be a certainty. But given the right conditions they are predictive a lot more often than not.

The current chart shows that the price has made it up around $42 a few times since July, but it has not gone any higher. However, each time it retreated away from this level, it declined less and less each time. If you draw a line across the top of the chart, it’s basically horizontal. If you draw another one along the bottom of the chart it slopes up and to the right, and intersects the upper line right about where the stock closed today. That’s significant. Take a look at the chart, and then I’ll tell you why it might mean something:

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