Sunday, March 6, 2016

The Last Pump And Dump

This recent short-covering rally was no "coincidence". Beaten down Energy companies took advantage of the bounce to sell the most stock in 17 years. Companies sell shares when they feel that their stocks are overvalued and/or when they believe this is the last chance to raise capital...

Energy stocks are historically overvalued relative to oil:
Energy stocks as ratio of oil:

In other words, no one who actually believes that their stock is undervalued and can't go any lower, would sell shares at these levels. And no investment bank that actually believes their own bullshit would recommend selling at these levels either...

Act of desperation visualized:
"If our stock has reached bottom why would we sell stock now?"

"Billions of dollars of dilutive equity continue to roll in with seemingly no end in sight," 

Why is this happening? Because the Price Earnings ratio for the Energy sector is NEGATIVE. The historical average is 10. It hit 50 in 2009. Shot up to 160 last year, and now it's essentially infinity, since earnings are negative... 

"The equity raising could resonate beyond the U.S. oil-patch and Wall Street, as fresh capital could lead to higher spending and a shallower drop in U.S. oil production than currently expected, and hence to a longer period of low oil prices."

Energy stocks with Emerging Markets