Something for the Weekend – Oil Have Some of That Recovery

An Englishman’s home is his castle they say. Especially that bloke in Surrey who hid his under bales of hay for years. Nowadays you could sell a house here in the South East and buy a castle overseas, that’s for sure. People take pride in their houses but in spite of all the TV shows giving people ideas for décor and interiors, or perhaps because of them, people still make a right mess of their ‘castles’. I remember one particular example, and this was a castle in the air. Stone cladding was not all the rage and yet people still bought it. I always thought of it as the kind of thing you might be sold by a clever salesman rather than the sort of thing you’d go out and buy. Well there must have been a brilliant salesman involved in this story. Half way up a low-rise tower block there it was: the one flat with stone cladding.

Selling is one of the jobs that many unexpectedly unemployed try their hand at, as it doesn’t need an awful lot of training, and if it turns out you’re good at it the rewards can be impressive. 120,000 people will have lost their jobs in the oil sector here by the end of the year it seems. I imagine lots of them will try their hand at selling. Interestingly, it creates an opportunity for some start-ups that are generally kick started by a wave of unemployment or redundancies.

I have been looking at the Oil Exploration and Production sector. Most of the stocks are trashed. I imagine it’s a matter of time before we see hostile take-overs and consolidation in the sector. But with these incredibly low prices it’s a gambler’s paradise, if you are happy to shove some cash into what is essentially a bet. With stocks trading at pennies that were once pounds, then it doesn’t take a genius to realise if you buy, say, 25 of them and just one goes back to pounds you should be quids in.

Many people routinely come out with glib, unhelpful, stock phrases, and I know which one would be trotted out here. “You’re trying to predict the bottom of the market, and you can’t catch a falling knife”. Unhelpful and inaccurate. Knives don’t have lower highs and higher lows to guide us. And what sort of moron would want to catch falling knives? Someone not frightened of hospitals and unperturbed by scars I should imagine. A better analogy would be you’re trying to decide if a falling ball will bounce or not. Is it a cricket ball or a tennis ball? Like knives, cats are also unhelpful here.

Look at Hardy Oil & Gas plc (LON:HDY). It was once almost £9. This week it’s trading around 22p. There’s even an entry signal! The monthly chart shows the complete devastation to the share price that’s taken place over a number of years. But check out that weekly chart: higher lows and we’re above the cloud. Same is true on the daily but the weekly is a clearer picture. Nice bounce off the cloud top and away it goes. It’s a FTSE Fledgling stock incidentally.

Some of these companies will recover. They are highly unlikely to all die. A bit of research might pay a handsome reward.  You need to check the news flow, of course, for something like this. There could be some news that supports the story on the chart. Equally, the price of a small stock like this is not that hard to manipulate, so you don’t want to be on the tail end of it, providing liquidity for those in the know to get out. And always consider who is creating the news flow: it could be just propaganda.

There are plenty of LSE stocks in the sector that look like Hardy and could be worth having a look at over the long weekend (particularly if, like me, you’re a Republican and consequently have no interest in the unelected head of state’s birthday). Liz Windsor, if indeed that is her real name.