August 29, 2003

Where the Money is Flowing: Oil

Dow bears did all their work by 10:30 a.m. yesterday, and then apparently got a head start on a Labor day weekend. After getting as low as 9,246, the Dow spent the rest of the day rallying, and closed up 128 points from the session low. Still, the most active stocks were almost all Nasdaq stocks. And once again, the QQQs are still the preferred way to be a tech bull (just as the new gold ETF will be the preferred way for the retail investor to be a gold bull). The S&P ETF, the “Spiders,” cracked the top ten as well. More proof that buying baskets of stocks in the same industry, sector, country, or asset class is a better risk than individual stocks. The top ten most actives: 1) QQQ, up 0.88% 2) INTC, up 1% 3) MSFT, up 0.34% 4) ORCL, up 2.57% 5) CSCO, up 0.95% 6) SUNW, down 0.79% 7) SPY, up 0.62% 8) AMAT, down 0.37% 9) JDSU, down 0.31% 10.) ADC, up, 7.49% Yet despite being the most actively traded stocks in the country, none of those stocks made it into the top ten in terms of money flow. Money flow tells you how much money is coming into or leaving a stock, after all the buys and sells are reconciled. Of course a lot of new money flowing into a stock doesn’t mean the stock is a buy. It just means a lot of new money is flowing into the stock. And it tells you something about where the “big money” is going. Yesterday’s top-money flow gainers were: 1) Exxon +$59 million 2) GM, +$59 million 3) AOL, +54 million 4) Wells Fargo, +$48 million 5) Amgen, +$35 million 6) Interpublic, +$34 million 7) Lowes Cos, +$30 million 8) ChevronTexaco, +$28 million 9) eBay, +$28 million 10) Schlumberger, +$26 million Anything catch your eye? Exxon, Chevron, Schlumberger perhaps? Yesterday I predicted a good day for oil service stocks based on higher crude prices and the constant geopolitical tension coming out of Iraq. Look at the chart below and you’ll see what I mean. SERVICES CRUSH INTEGRATED MAJORS The chart shows the Oil Service Holders (OIH) and Halliburton taking off at 10:30, while the Amex Oil Index of integrated majors (XOI) and Exxon logged more modest gains. OIH finished the day up 3.16% and HAL finished up 3.89% There was no major economic news to explain why the service stocks outperformed the majors. There was this bit, though, from, which, by the way, reinforces the idea that buying futures on any index or asset (the Dow, S&P, gold, or oil), can influence the cash index. “Oil service stocks rallied smartly in midday trading Thursday, boosted by strength in energy futures…In commodities trading on the New York Mercantile Exchange, October crude rose 32 32 cents to $31.53 a barrel…” In fact, every single one of the 18 stocks in OIH was up yesterday. Of course, it’s not realistic that you would have bought EVERY single one of them. That’s really the point though, isn’t it? With vehicles like OIH, you don’t HAVE to buy every single one and take 18 different risks. You have one risk. And that one risk is leveraged to benefit if you’re right about your idea. MARKET IMPLICATION: 61 IS A KEY LEVEL FOR OIH. IF IT CAN BREAK OUT OF THAT, IT’S CLEAR TECHNICAL SAILING UP TO ABOUT TO ABOUT 70, THE LEVEL IT LAST SAW IN MAY OF LAST YEAR.


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