Traders Call -- Energy -- trading at R 46.00
Since September last year I have been recommending Energy in the range R35 to R45 as a company which will benefit from a soaring oil price and I have often stated my view that the Free World has no alternative but to go into the Middle East to prevent being held to ransom with the major part of the world's oil reserves. By not doing anything -- religious dynamics mixed with nasty dictators suggest that Iraq and Iran will build nuclear and biological /chemical weapons and the means to deliver them. Both countries support Muslim fundamentalists. Iraq has shown every behaviour consistent with the willingness to attack surrounding countries which are oil producers or are seen as sympathisers with the U.S.
Control or disrupt Middle East oil supplies to the Free World and it becomes easier to be the Jihad hero.
Yet the US, by attempting to remove Saddam Hussein and his weapons -- oil wells in Iraq and surrounding countries are still vulnerable. Already we hear how Iraqi oil wells are being connected to explosives and detonators. We also hear from President Bush that Iraq already has the means to deliver weapons of mass destruction for more than 500 kilometres or from trawlers off any coastline and well within the range of surrounding countries' oil wells. After all, what better way to weaken America than by interrupting oil supplies and make them more expensive.
As Jack Singer, fund manager and analyst in Vancouver points out -- Colin Powell has no taste for war and is known as the dove in the administration. The fact that Powell now thinks that the US and a coalition has to go into Iraq - should be a matter of major concern to thinking people and to the Free World. It could well mean that Colin Powell and Mr. Bush and other decent informed people know more than they can tell.
If this Trader's sources are right and Saddam already has some nuclear capacity by courtesy of help from Iran and North Korea - as well as some accurate long-range missile capacity -- this news would panic international markets and accelerate oil price rises and shift the balance of power. Nothing can be said. Something has to be done.
What does this Trader look to for clues whether the Iraq situation is more serious than we know? It is just too simplistic to say that the US wants Iraq's oil and is manufacturing evidence accordingly. South Africa's ANC politicians seem to have the best intelligence services in the world - the way they dismissed the presentations of the leaders of the most successful industrial, financial and technological nation on earth.
Well if you are also anti- American, no need to argue more. Some useful facts pointing to reality are that the US$ is in a trend to weaker and plenty of clever informed money drives the US$. Also, notice the rising oil price, which is increasing at more than the amount of pure currency adjustment differentials. Then look at the technical trend signature of Brent Oil: while above $28.20 and above 7 week lows -- shows scope for an approach of resistance at $40.25 or to $57.10 in months. Also the Gold price stays strong above $350. Then have a look at a share such as Sasol -- which has been trending downwards under the influence of the strength prospects for the Rand, but which could now already be in a consolidation phase prior to reversal to up [although too early to tell until breakout plus heavy volumes push out of the R 93.90 to R84.50 range].
Then have a look at the oil companies and energy sector in the US and companies which will benefit from a higher oil price - show recently by firmer share prices. These are all useful indicators for prospects of an imminent oil price explosion. I believe that the fears are not just related to vague uncertainties around war - the fear is that Saddam or other angry little boys will destabilise the whole area rather than surrender quietly.
I do remind myself that in the war of words and deception and propaganda -- it is difficult to know who's telling the truth and isn't -- but it would appear a rational conclusion that Saddam Hussein and team are not very nice people and will stop at nothing -- including sabotaging oil wells and neighbouring states to hurt America and the UK. However smart the bombs -- there are going to be ugly human casualties and a higher oil price.
The US and UK are behaving with the certainty something has to be done. Plenty of other nations who do not have their own agendas in the Middle East also seem to recently grudgingly admit that armed action is necessary.
A trader has to assume that neither the US nor UK will back off. That means higher oil and petroleum prices are coming.
So let's look at Energy, trading (on the JSE) at R46.00. First thing to mention, is that this one benefits was from production and exploration potential with a higher oil price. Even though there was corporate activity in and before September last year, the prospect of higher earnings motivates the type of move we saw i.e. from the R35 area to the R45 area.
Now on resistance at R46, weekly volumes started picking up last week and are corroborating steady buying. Problem is the share is illiquid and it is difficult to find sellers without paying up 10 percent. Decent pockets of shares should be bought below or at R46 and between R46 and R49 if possible - when they become available.
Important support at R 40.35, but the healthy technical trend profile stays intact while this share trades above R32.60. That trend profile shows counts with resistance at R55.35 and at R62.80 and at R69.50 perhaps before July 2004 which is a long term candidate for a cycle high. Aggressive traders can use a tight stop at R42.75 and at R36.35. Take some profits along the way at R52.50 or R55.25 unless share action gaps upward through resistance - and take more profits around R62.80 in weeks or months from now. The 200 week sine cycle suggests that the share price will be strong until the next big profit taking resistance is reached during the first week of June 2003.
What if Mr. Saddam and Mr Kim decide to be peaceful and to go into exile? Earnings analysts will tell you that the share price is not being driven only by Middle East and North Korea problems. Yet credible news of solutions or delays would almost certainly enable some pullback buys. We would tighten our exit parameters - and look to buy lower when the buy signals next came.
Another risk for JSE investors is a stronger Rand e.g. on a gold price above $400 or news that Mr Mbeki wants to sell his jet to feed children! Yet I am not too worried about a hugely stronger Rand in the next three months. In June we look again.
For now, I think that Energy is an excellent buy between R44 and R49 -- target well above R60 within 15 months.
Best regards,
Victor Hugo
www.HugoCapital.com
www.saGOLDS.com
www.GOLDSignals.com
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