They reported good earnings, but similar to NE it was primarily expense control. As we know NE got slammed on earnings day, and has never really been given the credit for the strong quarter. This was also true with HERO the other day. DO on the other hand is being rewarded. If this continues for DO, I would think that NE would play some serious catch up and rally up to say 32 or so.
There is definitely a squeeze going on in DO. That's one of the advantages of high short interest....when the tide turns you get all those extra buyers who need to cover their short positions.
Just for perspective, DO just went up into the big selloff day in all these guys on 1/23/14....the equivalent stock price in NE is above 33.
Given the high short interest in all these guys; I suspect that some pretty big bets were placed on the apocalypse theory that things would get worse and worse and that these guys wouldn't bottom until they reached NAV. There were some pretty big influential analysts promoting that theory....I saw it promoted 2 times that I'm remembering and probably a few more. I think that some big short sellers decided that this situation was ripe for at least 6 months of worsening news. Now that that theory is becoming less and less likely with the earnings and the recent fleet reports and crude consistantly above 100, and bullish rallies in Oil Service stocks...I think some of these other deepwater guys are setting up for short squeezes similar to what is going on in DO today.
DO is currently trading about 10% above the high zone of it's February to early March consolidation. The equivalent range in NE would be about 35. Reversion to the mean suggests that either NE is going to rally quite a bit or DO is going to come back in somewhat after this squeeze. It would be different if the prospects for the 2 companies had a significant change that accounted for the performance difference...but that is not the case as far as I know. In my early years trading I was a pairs trader...so I still follow this type of thing.
Apologies for posting so much....it's just that with this DO rally, this could really mark a turning point in sentiment and therefore stock price on NE. Those DO shorts really got squeezed hard today. The thing is this....I've been watching NE carefully, and as I stated (I think 2 days ago) I was seeing quiet accumulation in NE. Today there is buying of course, but very orderly and measured.....NOT a short squeeze at all....that might still be ahead of us. With big traders trading the charts, this could really get a head of steam on a squeeze....momentum works in both directions, and a squeeze could be nasty. Above 32 is where I think a squeeze begins to materialize. I don't think this will happen though, unless DO holds its gains and maybe builds on them....the next few trading days are important to see how this plays out.
I'm keeping core position, I only sold what I bought today in NE and ESV when I saw DO getting successive big squeezes. I still have a fairly large position. I really think the key is to watch Friday and Monday's trading in DO. Any stock can have a one day squeeze, and DO did give some back in the afternoon, but if DO can hold above 51 and even build back to today's highs on Friday and Monday, I would say that NE should be able to get back to that April high close to 33, and ESV could move back to 53. I'd lighten up substantially on both if that happens. ESV did sell an older rig today, once again showing that the apocalypse analysts were wrong when they assumed all these older rigs would just be scrap metal. Extremist views are rarely the ones that play out.
wow, they HATE these stocks with the exception of DO. Very surprising to see how the earnings beats and not as bad as expected conditions don't matter and they just slam these stocks down in a strong market overall and strong energy market. Man, when the crowd decides to go one way they all go one way. Started the day with hefty profits, now down on the day.
It happened I just checked. Message board won't let me put in the website but it is secform4 and then you enter the stock symbol
If you go to the DO page you'll see an article in Barron's where the Barclay analyst says there is 30% downside to their estimates on offshore driller earnings. They are just rehashing the extreme negative case they made back a few months ago, but I think that is why we are down what seems to be an extreme amount to me given the constant selloff in these stocks this year. I've been buying some NE and ESV.
I think we will rally in both next week. The recent fleet status reports were OK...things are getting renewed and yes with day rates reduced....but still nowhere near the doom and gloom scenario. We had analysts making assumptions that rigs would be idled as they came up for renewal...by and large that has not been the case, and there are still strong pockets where renewals are at existing rates and newbuilds are getting the expected great rates near peak.
The time frame I'm looking at for my trading and my positioning right now is the last few months. The double bottom that jumps out at me on the daily chart is the lows set in mid April and the current lows from late last week. I like looking at RSI in relation to double bottoms because it can also give you clues about the strength of the double bottom. It is good to see a higher RSI reading on the 2nd bottom because that leans you toward an interpretation that selling pressure is diminishing and has worn itself out. This is the case in NE as the May bottom has a higher RSI reading than the April bottom. Also supportive of this interpretation is that the low set in March below 29 had the lowest RSI reading. This indicates to me the probability that the March low was the culmination of the selling and that at this point the majority of people who wanted to sell have done so and that the ship is slowly turning from the extreme negativity.
I think the lows have been tested and that as a first step we test selling pressure by rallying into the 31-32 range to measure resistance there.
Thanks, cben, sounds good and reinforces my sense in both the fundamentals and technicals that we've probably seen the worst for these guys (in terms of share price) and that we'll move up in a tentative way in the near term.
I have 2,500 shares of HERO and not considering selling any of it until it hits 6 which I know won't be until the sector turns around. I think this bounce is due mostly to a 5 year drilling contract they announced on a newbuild at a really solid rate, and also their fleet status report which is like the other ones we've been seeing....decent report without any big surprises and certainly nothing as alarming as the bearish analysts were predicting. to show you how crazy things have gotten in the sector, Hero operates around 38 rigs plus 24 liftboats. The newbuild contract they just signed is for 5 years and has a total value of 420 million. The entire company at this point has a market cap of 700 million. So with all those other 38 rigs plus 24 lifeboats, one single contract is worth 60% of the entire market cap. That's crazy! This should be a 6 dollar stock immediately and even then would be a big bargain.
Almost got to the 31 number, but there seems to be an aggressive shorter in NE who pounds it down. It's lagging DO, ESV, RIG and SDRL by a good amount. I say a shorter just from watching the trading. I think it is being singled out for shorting because DO has squeezes, ESV is more peppy and responds to up markets, RIG's got some big marquis activists pushing for higher divi's etc, and SDRL people like because of the age of their fleet, so they pick on NE.
A 3 year Treasury currently yields under 1%, and if interest rates go up (very probable given Fed planned action), you'll be losing value in it as you get your low rate of return.
With NE stock price already destroyed,(in low range of past 5 years) and the supposed weakness in contract pricing expected to last anywhere from 6 months to 18 months, it seems to me that getting a 5% return while you wait for the stock to rebound at least 10% (let's be super conservative) at some point over the next 3 years, buying now seems like a no-brainer. Not only that, but you stand a decent chance of having your cake and eating it too: 5% dividend increases and stock rebounds to 40 at some point over that 3 year period....you could get a total return of 40%+ if things go even moderately right.
As I mentioned in a prior post, you could see the shorts doing this....every time NE got a little head of steam, it would get pounded down with the 5 minute bars showing a strong volume spike, typical short action. I believe that some large hedge funds are behind this after reading the extremely negative analyst views from a few months ago. Every piece of evidence has disproved the "sky is falling" scenario. Yesterday, yet another fleet status report (RDC) showed that rig contracts are being signed and renewed. In the case of RDC, three of them. The negative analysts assumed that renewals would not happen....every single fleet status report over the last 2 months has disproved this negative assumption. The commentary from all the deepwater guys has acknowledged the slow patch (SDRL today), and if they are right, and it is just a slow patch, these shorts are going to get creamed eventually because the stock prices (below book value in many cases) already reflect the worst case scenario.