Arvind

Ravi Pathak

Arvind and SRF

Ravi Pathak

IVRCL is sitting at its strong trendline at around 680-690.First cut it doesnt look like breaking the trendline.Other indicators also shows partial buying opportunity in this counter with strict stop at 680. Have a nice time

Ravi Pathak

Analysis of tata steels acquisition

Some work on Tata steels acquisition of Millenium steel , Thailand.

http://groups.google.com/group/ravipathak/
browse_thread/thread/3f87b00973fc9bd1

Would love to receive feedback.I am trying to improve the assumption of this model of Synergy.If someone interested write to me.

I have used A.Damodarans model.

regards,
Ravi Pathk

Alok Textile

Guys,
Alok textile has breached its support line.
Get out of this stock and create fresh short position.
Still I would advice to be in Jan contracts as Qtr results will be out, n not expected to be too good.

Ravi

Andhrabank is forming a nice channel. can short this stock in Jan contract only.(no dec!!) If you have built position on my reco in HDFC bank then stay in that position. It is expected to come down. for Nifty 2760 remains good support. and It is positive above that level, so lets not get panick. Strong movement in downside is needed to make revarsal of 1.5 Yr strong bull mkt.

Ravi Pathak

My fundament work

On Indian Hotel industry

http://groups.google.com/group/ravipathak?lnk=li

Failed merger attempts of LKB and Federal bank

http://groups.google.com/group/ravipathak/browse_frm/thread/7a38b649dc12e6c3

Simulation Game

Friends,

Learning to invest in stock, is not at all difficult now.

One of my friends have done a great job by devising a platform for a global investor.

 

Check www.tradeover.net or simulation game link in on this page.

 

As we all grow in outward looking economy more and more global factors starts affecting our markets.One needs to be updated about that.This game helps in having a macro perspective.

 

According to me , to become better investor or trader one has to pay price in terms of losses in really market.Now that can be cut off.

 

Playing this simulation game can enhance your own skills without paying price to learn to invest in the market.

 

Guys I humbly request you to visit this site and take its advantage.

regards,
Ravi Pathak

P.S:My id is Midas and luckily I made good returns virtually though.:D

 

Perfectly trending stock. Chart of Alok industries suggest potential buying opportunities exist.One can enter in this stock for the target to be 87-89. Have a strict stoploss at 65-66.Happy trading friends.

Ravi Pathak

Daily chart of HDFC suggest following 1.There exist tremendous narrow range of trading activity in HDFC Bank.Bollinger bands are narrower by 50% then normal.Money flow index also shows peeking. Technically stock looks weaker and one should short with the target of around 620 with the stop at 734.

Ravi Pathak

BPCL is expected to give break-out soon.The above chart is weekly charts and couple of week back with low volume BPCL tried to broke but couldnt. So it might just do it next time. Besides,Govt.'s indication not to rationalized or reduce the prices of fuel should give backing to the logic that oil mkting companies would have post good result in third querter.

Ravi Pathak

magic formula of Value investing

Definition of a Company:
A company is a system which converts cash into inventory into revenues and back into [more] cash again.
Some companies do this conversion very fast, some do it slowly.
Cash is king and how a company creates cash using the capital it has is what seperates diamond from coal.
Lets see where we can go from here...
Greenblatt's backtesting shows thatbuying stocks that rank highest in a combination of => earnings yield (the inverse of the price-to-earnings [P/E] ratio) and=> return on capital.have doubled the market's returns.Its important to pay close attention to return on invested capital for a long time.Since this is the most simple measure of the effectiveness of the whole company.
Buying low-priced stocks (low P/Es = high earnings yield) that also are the best at making profits on their invested capital is something that has a great deal of intuitive appeal.
More on ROICReturn on invested capital (ROIC) is a measure of financial performance.=>Looking at economic earnings -- free cash flow (or return on invested capital) minus a charge for the use of that capital -- produces a much better view of the economics and value of a company than just looking at earnings growth.=>After all, earnings growth comes at a price in many instances -- whether that's heavy investment in working capital, fixed assets, or the issuance of stock to acquire other businesses.=>It's not profit margins that determine a company's desirability, it's how much cash can be produced by each dollar of cash that is invested in a company by either its shareholders or lenders.=>Measuring the real cash-on-cash return is what ROIC seeks to accomplish.
Why not use ROE?ROI is sort of like ROE, but greatly improves upon it. Return on equity (net income divided by average shareholders' equity in use over the period being looked at) takes into account in the denominator only the net assets in use by the corporation. A major problem with this is that certain liabilities mandated by GAAP (Generally Accepted Accounting Principles) reduce the amount of resources at the company's disposal in the ROE equation. Depending on the circumstances, though, these liabilities should not be counted as a reduction in the capital working for the benefit of shareholders. They should be counted as an addition to capital in use by shareholders. That being the case, moving an amount out of liabilities and into owners' equity necessarily increases the denominator of the ROE equation and thus lowers the company's return on equity.Not all assets are funded by owners' equity, so looking at just owners' equity as a measure against which return is compared is going to miss the boat at times. Those companies that finance their assets with just a sliver of owners' equity and a boatload of liabilities can drive the value of owners' equity to zero pretty quickly with just one misstep. A 20% return on owners' equity in a company with very low leverage (defining leverage for these purposes as the ratio of assets to owners' equity) is a much different and preferable result to a company with very high leverage generating an ROE of 20%. We need an alternative definition of capital that measures the full amount of capital in use by a company's managers, whether that capital was raised through equity or through debt. In other words, we want to look at the company's performance independent of its financing decisions. ROIC is the way to do that.Looking at ROIC tells an investor how efficiently the company is being run and how much cash is being generated per dollar of investment, independent of how management chooses to finance the company. Whether the company is financed with equity (by selling stock) or debt (by drawing on a bank line of credit or selling debt directly to interested investors), ROIC doesn't care. The idea is to have some sense of what the company's operating performance is regardless of the particular way that the company has financed its invested capital. This allows you as a potential shareholder (and business owner) to discern between the actual operating performance of the business and the side effects of how that business was financed.You want to look at operating performance independent of financing because conventional accounting does not treat all financing costs equally. While interest, the cost of debt, is reflected on the income statement, the more intangible (but no less real) cost of the equity capital is not reflected at all. What? You mean equity costs money? You bet your sweet belled cap it does! When a shareholder like yourself gets equity (or stock, for those inclined toward the less pretentious version), do you expect that the stock will increase in value? How much do you expect it to increase in value? That percentage increase is the cost of equity capital -- if investors do not get the return they expect, they will sell the stock to a new investor, who comes in expecting to earn his target return on the lower share price. The consensus expectation of all investors who own the stock is the cost of equity capital. Just because it is not deducted out of earnings like debt doesn't make it any less real.
Cost of Equity? Isnt Equity Free?Though the cost of equity does not show up on a company's income statement, it is not free. Investors expect a rate of return on equity that is in line with the Nifty50 or Nifty500 and that also takes into account the specific risks of the company in question. Say for a company that has an average debt-to-equity ratio of 109% in the year 7 and may also be operating in a slower-growth industry with poor economics to begin with. In that case, we would demand a rate of return on equity of about 1.2 times the Nifty 500's historical return to compensate for the extra risk. That means that the equity being used by this business will cost it 13.2%. A lower return on equity will hurt the valuation of the company's equity and ultimately the multiple the market will pay for all the capital invested in the business as well as its earnings and cash flow.
How to add up up the capital at work, =>According to the theoretical work of Bennett Stewart III in The Quest for Value: The EVA Management Guide=>You can add up the capital in use by a firm by focusing primarily on the right-hand side of the balance sheet (where you find liabilities and owners' equity)=>or by looking primarily on the left-hand side of the balance sheet, which is where assets are found.=>Remember, assets minus liabilities equals owners' equity -- the bottom line on a balance sheet. Rearranging the equation, though, gets us to an expression of how all assets are funded on a balance sheet: assets = liabilities + owners' equity.So, we can calculate invested capital as being equal to all financial capital.
We can also look at it starting from the asset side.
Start with all assets and deduct non-interest bearing current liabilities.
The liabilities of accounts payable and accrued compensation expenses do not represent capital invested in the business by either equity or debt holders.
While they are debt under the most stringent forms of looking at the balance sheet, they don't represent invested capital. As long as a company pays its vendors within standard or agreed upon terms, accounts payable are not interest-bearing liabilities.
As for accrued compensation expenses, any company that doesn't pay by the day is going to operate with an average level of these liabilities all year long. The value of work that an employee renders is found in inventory, if the company is a traditional manufacturer. Since many people are paid on a bi-weekly schedule, the value that the employee renders in labor between paydays is accrued. It's pretty much an interest-free short-term loan of labor.Now we have to adjust the return before dividing it into invested capital to calculate ROIC. The net income figure that is used in the calculation of return on equity is not directly analogous to the "return" in ROIC. That's because ROE is concerned with the return on equity after all other financing sources have been taken care of.
Net Income? lets find it carefully.
Net income is net of interest expense as well as other expenses below the operating income line on the income statement.
We want to measure the income the company generates before considering what capital costs.
In this way, we are looking at the pure earnings power of a corporation before taking into account the decisions that were made to finance the business.the formula for ROIC is:After-tax operating earnings= --------------------------------------------------------------------------------------------[total assets minus non-interest-bearing current liabilities - Cash - GoodWill]Why is ROI so PowerFullROIC looks at earnings power in the context of how much capital is tied up in a business and what sort of return that capital is generating.
The whole idea of "earnings growing by such-and-such" takes on less importance as a stand-alone concept when you're looking at how much capital is being poured into a business.
It is real easy to grow your earnings by investing more money into the business.
However, it is not quite as easy to grow earnings by investing capital if you intend to maintain your current level of return on invested capital.Say there's a company that is able to grow operating earnings by 20% per year for six years, and you purchase it a P/E of 10. "Such a deal," you might think.
The conventional wisdom of investing teaches that P/E is a determinant of value and that a company growing at 20% per year should be worth far more than 10 times trailing earnings. However, while you're focusing on all that earnings growth, you might miss a deteriorating underlying trend of declining economic performance -- or in English, you may not notice that return on invested capital is dropping like a stone as the company invests in projects that earn smaller and smaller returns.An example which shows how EPS growth can get misleading while ROI shows the true pic. After-tax Invested Operating operating Capital ROIC Earnings earnings GrowthYear $500 1 $100 $600 18.2% 20%2 $120 $740 17.9% 20%3 $144 $999 16.6% 20%4 $172.8 $1,398.6 14.4% 20%5 $207.36 $2,097.9 11.9% 20%6 $248.83 $2,986 9.8% 20%7 $298.60 $3,881.8 8.7% 20%
(ROIC is calculated on average invested capital for each period)At the end of the period, the company's operating income is 199% higher than in year one. However, the company is currently investing in new projects that earn far less than what the original, core business did. In fact, given how low ROIC has dropped, the new projects are probably earning only 5% to 6% -- about what an investor can get in 100% secure, U.S. Government-issued 30-year bonds. What kind of fool would be happy that management is investing new money at a rate of return that an investor can get in a bond? Not very many, which is probably why the stock only trades at 10 times earnings.Companies Destorying Value?The above company hasn't built shareholder value because it has invested in projects with ROIC that is below the rate of return investors expect. That's because it has had to increase capital invested in the business at a faster rate than earnings and revenues have grown.
Receivables, inventory, building warehouses, and other capital assets such as presses and trucks have all been necessary investments to create the 20% earnings growth that shareholders have demanded. Over the intervening years, the company has had to take on lines of credit, issue commercial paper, and issue long-term debt and preferred stock to finance the expansion because internally generated funds were not sufficient to finance the growth. In spite of the fact that management has focused on earnings growth, the horrible returns on new capital being invested in the business are causing smart investors -- "lead steers," as Bennett Stewart calls them in his book -- to look elsewhere.What exactly are these "lead steers" looking for in a company? These investors want a company that is "beating" its "cost of capital" -- investing new money into projects that have ROIC that is higher than the expected returns shareholders demand.Is Growth always good for shareholders return?Rather than acting as a stand-alone conception of how well a company is operating, ROIC should be looked at in relation to the company's cost of capital. Companies such as Coca-Cola have operated on this system, called Economic Value Added, or EVA, for a number of years (as have leveraged buyout financiers).
The philosophy doesn't make these companies successful -- it's the implementation of it that makes a difference.
Not all successful companies operate based on EVA, either. Some managements think in this way to begin with. However, the readers should know that some of the biggest generators of shareholder value over the last two decades have embraced this philosophy. The company in our example would have stopped growing at a certain point to preserve shareholder value, forgoing growth for growth's sake. Taking too much debt which does not generates return near or more than cost of equity would slowly destory a companys shareholder equity. At a certain point, more of the value of the enterprise goes to its creditors than to its shareholders.When ROIC starts to drop, investors should pay attention. It can signal anything from a momentary blip in the company's progress to a decay in industry or company fundamentals. Successful companies in more mature industries (the characteristics defining success for companies in hypergrowth industries are much different) generate ROIC above and beyond their cost of capital -- in fact, this is one reason why the Nifty50 is priced the way it is and why it has outperformed the small and mid-cap universes. Companies in the Nifty50 are simply the creme de la creme of business and show a better spread between their return on invested capital and the cost of capital they use.In addition, the very good companies are able maintain excellent returns on invested capital even as they increase invested capital year after year, while others rationalize their operations and sell off those units that can't generate the ROIC that they see elsewhere in their company. By dumping such operations, a company's earnings can shrink, but the valuation on the remaining earnings and capital invested in the business can increase so that the company is now worth more.
How to account for Cash in ROIC calculations
Whether it's funded by liabilities or owners' equity, the cash represents capital that has been invested in the business. However, there is a difference between invested and deployed, which is where some investors and analysts differ in their view of ROIC.
the formula for ROIC is:After-tax operating earnings= --------------------------------------------------------------------------------------------[total assets minus non-interest-bearing current liabilities - Cash - GoodWill]
Some feel more comfortable with this definition because cash represents capital that hasn't been deployed in other assets or represents potential to reduce liabilities or owners' equity. I stand by this definition depending on the application. A distinction should be made between financial capital and invested capital. This is needed since mant times a large amount of cash may remain on the sidelines waiting to be invested !
In the case of a fast-growing company that has issued securities but has not yet deployed the cash from those issuances, we don't want to get too racy with what we consider as excess capital. We also don't want to unduly penalize the company's valuation just because we are taking a snapshot of the financials at a time when it has not yet had the chance to invest all the capital that it has at its disposal. A compromise is in order.
Depending on the capital intensity and the speed at which a company can turn inventory into cash (its cash conversion cycle), the invested capital base of the company should reflect only the cash balance that a company needs to have on hand to cover day-to-day cash outlay needs. For instance, most restaurants that aren't going under need to retain very little cash on hand because they operate in a cash business. Their inventory is turned into cash very quickly, while the payables for the inventory operate on a cycle not all that different from any other business with a good credit rating.
the new formula for ROIC is:After-tax operating earnings= -------------------------------------------------------------------------------------------------------[total assets - non interest bearing current liabilities - Excess Cash - GoodWill]
5% of sales in cash is probably a prudent level of cash to hold and anything beyond that can be deducted from the invested capital base.
In sumamryIts cash-on-cash returns are what we're looking for in calculating ROIC.The cash-on-cash return is literally the amount of cash you get back compared with the amount of cash you had to invest in the business.After removing all of the distortions created by accounting, looking at return on invested capital allows you to accurately measure how much cash you get out of a business for every dollar you put into it. The general rule is that the more cash you can get per dollar of investment, the better the business is. Now, whether the cash you are investing into the business is called an "expense" and simply deducted from revenues (like Cost of Goods Sold or Sales, General & Administrative expenses on the Statement of Income) or whether those expenses are "capitalized" and turned into an asset that is placed on the Consolidated Balance Sheet, ROIC can let you see how well the company is actually doing, independent of the accounting method chosen by a company's management.By looking at a company's financials from the standpoint of ROIC, an investor considers what's going on with both the income statement and the balance sheet. The various ratios that an investor considers (leverage, cash conversion cycle elements, margins, asset turnover) are brought together under the unified ROIC model. ROIC also allows an investor to look through the various accounting choices that a company can make to portray earnings. As most accounting regimes are rich in balance sheet accruals, ROIC is able to identify the real economic return a company generates. Those expenses that don't go into net income stay home on the balance sheet as part of the company's invested capital. So, what doesn't get considered in the numerator in ROIC has to be considered in the denominator._________________________________for detailed reading visithttp://magicformulainvesting.comhttp://www.fool.com/School/roic/roic.htmalso visit http://www.fool.com/School/HowtoValueStocks.htm to find more gems and ideas

from rajeev mundra

Oil Price History and Analysis

My analysis of this article coming soon.

 

Ravi

Oil Price History and Analysis	A discussion of crude oil prices, the relationship between prices and rig count and the outlook for the future of the petroleum industry.
Introduction Crude oil prices behave much as any other commodity with wide price swings in times of shortage or oversupply. The crude oil price cycle may extend over several years responding to changes in demand as well as OPEC and non-OPEC supply.  The U.S. petroleum industry's price has been heavily regulated through production or price controls throughout much of the twentieth century. In the post World War II era U.S. oil prices at the wellhead have averaged $20.94 per barrel adjusted for inflation to 2004 dollars. In the absence of price controls the U.S. price would have tracked the world price averaging $22.86. Over the same post war period the median for the domestic and the adjusted world price of crude oil was $17.18 in 2004 prices. That means that only fifty percent of the time from 1947 to 2004 have oil prices exceeded $17.18 per barrel.  (See note in box on right.) Until the March 28, 2000 adoption of the $22-$28 price band for the OPEC basket of crude, oil prices only exceeded $23.00 per barrel in response to war or conflict in the Middle East.	Crude Oil Prices 1947-2004 Click on graph for larger view *World Price - The only very long term price series that exists is the U.S. average wellhead or first purchase price of crude. When discussing long-term price behavior this presents a problem since the U.S.  imposed price controls on domestic production from late 1973 to January 1981. In order to present a consistent series and also reflect the difference between international prices and U.S. prices we created a world oil price series that was consistent with the U.S. wellhead price adjusting the wellhead price by adding the difference between the refiners acquisition price of imported crude and the refiners average acquisition price of domestic crude.
The Very Long Term View The very long term view is much the same.  Since 1869 US crude oil prices adjusted for inflation have averaged $18.59 per barrel compared to $19.41 for world oil prices. Fifty percent of the time prices were U.S. and world prices were below the median oil price of $15.17 per barrel.  If long term history is a guide, those in the upstream segment of the crude oil industry should structure their business to be able to operate  with a profit, below $15.17 per barrel half of the time.	Crude Oil Prices 1869-2004 Click on graph for larger view
Post World War II Pre Embargo Period Crude Oil prices ranged between $2.50 and $3.00 from 1948 through the end of the 1960s. The price oil rose from $2.50 in 1948 to about $3.00 in 1957. When viewed in 2004 dollars an entirely different story emerges with crude oil prices fluctuating between $15 - $17 during the same period.  The apparent 20% price increase was just keeping up with inflation.  From 1958 to 1970 prices were stable at about $3.00 per barrel, but in real terms the price of crude oil declined from above $16 to below $13 per barrel.  The decline in the price of crude when adjusted for inflation was amplified for the international producer in 1971 and 1972 by the weakness of the US dollar.  OPEC was formed in 1960 with five founding members Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.  By the end of 1971 six other nations had joined the group: Qatar, Indonesia, Libya, United Arab Emirates, Algeria and Nigeria.  From the foundation of the Organization of Petroleum Exporting Countries through 1972 member countries experienced steady decline in the purchasing power of a barrel of oil.  Throughout the post war period exporting countries found increasing demand for their crude oil but a 40% decline in the purchasing power of a barrel of crude.  In March 1971, the balance of power shifted.  That month the Texas Railroad Commission set proration at 100 percent for the first time.  This meant that Texas producers were no longer limited in the amount of oil that they could produce.  More importantly, it meant that the power to control crude oil prices shifted from the United States (Texas, Oklahoma and Louisiana) to OPEC.  A little over two years later OPEC would through the unintended consequence of war get a glimpse at the extent of its ability to influence prices.	World Events and Crude Oil Prices 1947-1973 Click on graph for larger view Middle East, OPEC and Oil Prices 1947-1973 Click on graph for larger view
Middle East Supply Interruptions Yom Kippur War - Arab Oil Embargo In 1972 the price of crude oil was about $3.00 per barrel and by the end of 1974 the price of oil had quadrupled to over $12.00. The Yom Kippur War started with an attack on Israel by Syria and Egypt on October 5, 1973. The United States and many countries in the western world showed strong support for Israel. As a result of this support several Arab exporting nations imposed an embargo on the countries supporting Israel. Arab nations curtailed production by 5 million barrels per day (MMBPD) about 1 MMBPD was made up by increased production in other countries. The net loss of 4 MMBPD extended through March of 1974 and represented 7 percent of the free world production.  If there was any doubt that the ability to control crude oil prices had passed from the United States to OPEC it was removed during the Arab Oil Embargo.  The extreme sensitivity of prices to supply shortages became all too apparent when prices increased 400 percent in six short months.  From 1974 to 1978 world crude oil prices were relatively flat ranging from $12.21 per barrel to $13.55 per barrel.  When adjusted for inflation the price over that period of time exhibited a moderate decline.  Crises in Iran and Iraq Events in Iran and Iraq led to another round of crude oil price increases in 1979 and 1980. The Iranian revolution resulted in the loss of 2 to 2.5 million barrels of oil per day between November, 1978 and June, 1979.  At one point production almost halted.  Iraq invaded Iran in September, 1980 by November the combined production of both countries was only a million barrels per day and  6.5 million barrels per day less than a year before.  Worldwide crude oil production was 10 percent lower than in 1979. The combination of the Iranian revolution and the Iraq/Iran War resulted in crude oil prices more than doubling from $14 in 1978 to $35 per barrel in 1981. Twenty-five years later Iran's production is only two-thirds of the level reached under the government of Reza Pahlavi the former Shah of Iran.	U.S. and World Events and Oil Prices 1973-1981 Click on graph for larger view Iran Oil production 1973-2005 Click on graph for larger view Iraq Oil production 1973-2005 Click on graph for larger view
US Oil Price Controls - Bad Policy? The rapid increase in crude prices from 1973 to 1981 would have been much less were it not for United States energy policy during the post Embargo period. The US imposed price controls on domestically produced oil in an attempt to lessen the impact of the 1973-74 price increase.  The obvious result of the price controls was that U.S. consumers of crude oil paid about 50 percent more for imports than domestic production. Put another way U.S producers received less than world market price. Did the policy achieve its goal? In the short term the recession induced by the 1973-1974 crude oil price rise was less because U.S. consumers faced lower prices.  However, it had other effects as well.  In the absence of price controls U.S. exploration and production would certainly have been significantly greater. The higher prices faced by consumers would have resulted in lower rates of consumption: automobiles would have had higher mileage sooner, homes and commercial buildings would have been better insulated and improvements in industrial energy efficiency  would have been greater than they were during this period. As a consequence, the United States would have been less dependent on imports in 1979-1980 and the price increase in response to Iranian and Iraqi supply interruptions would have been significantly less.	US Oil Price Controls 1973-1981 Click on graph for larger view
OPEC's Failure to Control Crude Oil Prices
OPEC has seldom been effective at controlling prices. While often referred to as one OPEC does not satisfy the definition of a cartel. One of the primary requirements is a mechanism to enforce member quotas.  During the 1979-1980 period of rapidly increasing prices, Saudi Arabia's oil minister Ahmed Yamani repeatedly warned other members of OPEC that high prices would lead to a reduction in demand. His warnings fell on deaf ears.  Surging prices caused several reactions among consumers: better insulation in new homes, increased insulation in many older homes, more energy efficiency in industrial processes, and automobiles with higher mileage. These factors along with a global recession caused a reduction in demand which led to falling crude prices.  Unfortunately for OPEC only the global recession was temporary. Nobody rushed to remove insulation from their homes or to replace energy efficient plants and equipment -- much of the reaction to the oil price increase of the end of the decade was permanent and would not respond to lower prices with increased demand for oil.  The higher prices also resulted in increased exploration and production outside of OPEC. From 1980 to 1986 non-OPEC production increased 10 million barrels per day. OPEC was faced with lower demand and higher supply from outside the organization. From 1982 to 1985 OPEC attempted to set production quotas low enough to stabilize prices. These attempts met with repeated failure as various members of OPEC would produce beyond their quotas. During most of this period Saudi Arabia acted as the swing producer cutting its production to stem the free falling prices. In August of 1985, the Saudis tired of this role.  They linked their oil prices to the spot market for crude and by early 1986 increased production from 2 MMBPD to 5 MMBPD.  Crude oil prices plummeted below $10 per barrel by mid-1986.  A December 1986 OPEC price accord set to target $18 per barrel was already breaking down by January of 1987. Prices remained weak. The price of crude oil spiked in 1990 with the uncertainty associated Iraqi invasion of Kuwait and the ensuing Gulf War, but following the war crude oil prices entered a steady decline until in 1994 inflation adjusted prices attained their lowest level since 1973.  OPEC had mixed success at controlling prices. There were mistakes in timing of quota changes as well as the usual problems in maintaining production discipline among its member countries.	World Events and Crude Oil Prices 1981-1998 Click on graph for larger view Non-OPEC Production & Crude Oil Prices Click on graph for larger view OPEC Production & Crude Oil Prices Click on graph for larger view
The price cycle then turned up. The United States economy was strong and the Asian Pacific region was booming. From 1990 to 1997 world oil consumption increased 6.2 million barrels per day. Asian consumption accounted for all but 300,000 barrels per day of that gain and contributed to a price recovery that extended into 1997. The price increases came to a rapid end when the impact of the economic crisis in Asia was either ignored or severely underestimated by OPEC.  In December, 1997 OPEC increased its quota by 2.5 million barrels per day (10 percent) to 27.5 MMBPD effective January 1, 1998. The rapid growth in Asian economies had come to a halt and in 1998 Asian Pacific oil consumption declined for the first time since 1982. The combination of lower consumption and higher OPEC production sent prices into a downward spiral In response, OPEC cut quotas by 1.25 million b/d in April and 1.335 million in July. Price continued down through December 1998. Prices began to recover in early 1999 and OPEC reduced production another 1.719 million barrels in April 1999. As usual not all of the quotas were observed but between early 1999 and the middle of 1999 OPEC production dropped by about 3 million barrels per day and was sufficient to move prices above $25 per barrel. With minimal Y2K problems and growing US and world economies the price continued to rise throughout 2000 to a post 1981 high. Between April and October three successive quota increases totaling 3.2 million barrels per day were not able to stem the price increases. Prices finally started down following another quota increase of 500,000 effective November 1, 2000.	World Events and Crude Oil Prices 1997-2003 Click on graph for larger view OPEC Production 1990-2005 Click on graph for larger view
Russian production increases dominated non-OPEC production growth from 2000 forward and was responsible for most of the non-OPEC increases since the turn of the century.  Once again it appeared that OPEC overshot the mark. In 2001 a weakening US economy and increases in non-OPEC production put downward pressure on prices.  In response OPEC once again entered into a series of reductions in member quotas cutting 3.5 million barrels by September 1, 2001. In the absence of the September 11, 2001 terrorist attack this would have been sufficient to moderate or even reverse the trend. In the wake of the attack the crude oil price plummeted. Spot prices for the U.S. benchmark West Texas Intermediate were down 35 percent by the middle of November. Under normal circumstances a drop in price of this magnitude would have resulted an another round of quota reductions but given the political climate OPEC delayed additional cuts until January 2002 when it reduced its quota by 1.5 million barrels per day and was joined by several non-OPEC producers including Russia who promised combined production cuts of an additional 462,500 barrels. This had the desired effect with oil prices moving into the $25 range by March, 2002. By mid-year the non-OPEC members were restoring their production cuts but prices continue to rise and U.S. inventories reached a 20-year low later in the year.  By year end oversupply was not a problem. Problems in Venezuela led to a strike at PDVSA causing Venezuelan production to plummet. In the wake of the strike Venezuela was never able to restore capacity to its previous level and is still about 900,000 barrels per day below its peak capacity of 3.5 million barrels per day.  OPEC increased quotas by 2.8 million barrels per day in January and February, 2003.  On March 19, 2003, just as some Venezuelan production was beginning to return, military action commenced in Iraq. Meanwhile, inventories remained low in the U.S. and other OECD countries. With an improving economy U.S. demand was increasing and Asian demand for crude oil was growing at a rapid pace. The loss of production capacity in Iraq and Venezuela combined with increased production to meet growing international demand led to the erosion of excess oil production capacity. In mid 2002, there was over 6 million barrels per day of excess production capacity, but by mid 2003 the excess was below 2 million. During much of 2004 and 2005 the spare capacity to produce oil has been under one million barrels per day. A million barrels per day is not enough spare capacity to cover an interruption of supply from almost any OPEC producer. In a world that consumes over 80 million barrels per day of petroleum products that adds a significant risk premium to crude oil price and is largely responsible for prices in excess of $40 per barrel.	World Events and Crude Oil Prices 2001-2005 Click on graph for larger view Russian Crude Oil Production Click on graph for larger view Excess Crude Oil Production Capacity Click on graph for larger view
Impact of Prices on Industry Segments Drilling and Exploration
Boom and Bust The Rotary Rig Count is the average number of drilling rigs actively exploring for oil and gas. Drilling an oil or gas well is a capital investment in the expectation of returns from the production and sale of crude oil or natural gas. Rig count is one of the primary measures of the health of the exploration segment of the oil and gas industry.  In a very real sense it is a measure of the oil and gas industry's confidence in its own future.  At  the end of the Arab Oil Embargo in 1974 rig count was below 1500. It rose steadily with regulated crude oil prices to over 2000 in 1979.  From 1978 to the beginning of 1981 domestic crude oil prices exploded from a combination of the the rapid growth in world energy prices and deregulation of domestic prices. At that time high prices and forecasts of crude oil prices in excess of $100 per barrel fueled a drilling frenzy. By 1982 the number of rotary rigs running had more than doubled.  It is important to note that the peak in drilling occurred over a year after oil prices had entered a steep decline which continued until the 1986 price collapse. The one year lag between crude prices and rig count disappeared in the 1986 price collapse. For the next few years the economy of the towns and cities in the oil patch was characterized by bankruptcy, bank failures and high unemployment.	U.S. Rotary Rig Count 1974-2005 Crude Oil and Natural Gas Drilling Click on graph for larger view
After the Collapse Several trends established were established in the wake of the collapse in crude prices. The lag of over a year for drilling to respond to crude prices is now reduced to a matter of months. (Note that the graph on the right is limited to rigs involved in exploration for crude oil as compared to the previous graph which also included rigs involved in gas exploration.) Like any other industry that goes through hard times the oil business emerged smarter, leaner and more conservative. Industry participants, bankers and investors were far more aware of the risk of price movements. Companies long familiar with accessing geologic, production and management risk added price risk to their decision criteria.  Technological improvements were incorporated:  Increased use of 3-D seismic data reduced drilling risk. Directional and horizontal drilling led to improved production in many reservoirs. Financial instruments were used to limit exposure to price movements. Increased use of CO2 floods and improved recovery methods to improve production in existing wells. In spite of all of these efforts the percentage of rigs employed in drilling for crude oil decreased from over 60 percent of total rigs at the beginning of 1988 to under 15 percent until a recent resurgence.	U.S. Rotary Rig Count Exploration for Oil Click on graph for larger view U.S. Rotary Rig Count Percent Exploring for Crude Oil Click on graph for larger view
Well Completions - A measure of success? Rig count does not tell the whole story of oil and gas exploration and development. It is certainly a good measure of activity, but it is not a measure of success.  After a well is drilled it is either classified as an oil well, natural gas well or dry hole. The percentage of wells completed as oil or gas wells is frequently used as a measure of success.  In fact, this percentage is often referred to as the success rate.   Immediately after World War II 65 percent of the wells drilled were completed as oil or gas wells. This percentage declined to about 57 percent by the end of the 1960s. It rose steadily during the 1970s to reach 70 percent at the end of that decade. This was followed by a plateau or modest decline through most of the 1980s.  Beginning in 1990 shortly after the harsh lessons of the price collapse completion rates increased dramatically to 77 percent. What was the reason for the dramatic increase? For that matter, what was the cause of the steady drop in the 1950s and 1960s or the reversal in the 1970s?  Since the percentage completion rates are much lower for the more risky exploratory wells, a shift in emphasis away from development would result in lower overall completion rates. This, however, was not the case. An examination of completion rates for development and exploratory wells shows the same general pattern. The decline was price related as we will explain later.  Some would argue that the periods of decline were a result of the fact that every year there is less oil to find.  If the industry does not develop better technology and expertise every year, oil and gas completion rates should decline. However, this does will not explain the periods of increase.  The increases of the seventies were more related to price than technology. When a well is drilled, the fact that oil or gas is found does not mean that the well will be completed as a producing well.  The determining factor is economics. If the well can produce enough oil or gas to cover the additional cost of completion and the ongoing production costs it will be put into production.  Otherwise, its a dry hole even if crude oil or natural gas is found.  The conclusion is that if real prices are increasing we can expect a higher percentage of successful wells. Conversely if prices are declining the opposite is true.  The increases of the 1990s, however, cannot be explained by higher prices. These increases are the result of improved technology and the shift to a higher percentage of natural gas drilling activity. The increased use of and improvements to 3-D seismic data and analysis combined with horizontal and and directional drilling improve prospects for successful completions. The fact that natural gas is easier to see in the seismic data adds to that success rate. Most dramatic is the improvement in the the percentage exploratory wells completed. In the 1990s completion rates for exploratory wells have soared from 25 to 45 percent.	Oil and Gas Well Completion Rates Click on graph for larger view Oil and Gas Well Completion Rates Click on graph for larger view Oil and Gas Well Completion Rates Development Click on graph for larger view U.S. Oil and Gas Well Completion Rates Exploration Click on graph for larger view
Workover Rigs - Maintenance Workover rig count is a measure of the industry's investment in the maintenance of oil and gas wells.  The Baker-Hughes workover rig count includes rigs involved in pulling production tubing, sucker rods and pumps from a well that is 1,500 feet or more in depth. Workover rig count is another measure of the health of the oil and gas industry. A disproportionate percentage of workovers are associated with oil wells. Workover rigs are used to pull tubing for repair or replacement of rods, pumps and tubular goods which are subject to wear and corrosion.  A low level of workover activity is particularly worrisome because it is indicative of deferred maintenance.  The situation is similar to the aging apartment building that no longer justifies major renovations and is milked as long as it produces a positive cash flow. When operators are in a weak cash position workovers are delayed as long as possible. Workover activity impacts manufacturers of  tubing, rods and pumps. Service companies coating pipe and other tubular goods are heavily affected.	U.S. Workover Rigs and Crude Oil Prices

Break out

BILT is poised at major break out too.

With the momemtum in the market it can have first target of 128 shortly.

 

regards,

Ravi

corporation bank is expected to have a break out.Get into it if it crossed 372 on closing basis.

Ravi Pathak

n 05/12/2005, Rel.capital closed below the upper band by 24.8%.

Bollinger Bands are 51.38% wider than normal. The large width of the bands suggest high volatility as compared to Rel.capital's normal range. Therefore, the probability of volatility decreasing and prices entering (or remaining in) a trading range has increased for the near-term. The bands have been in this wide range for 12 period(s). The probability of prices consolidating into a less volatile trading range increases the longer the bands remain in this wide range.

The recent price action around the bands compared to the action of the Relative Strength Index (RSI) suggests that a possible selling (short) opportunity may exist. Prices have recently peaked above the upper band. This action was followed by a selloff and then another peak inside the bands. The RSI has diverged from this price action with successive lower peaks, suggesting weakness ahead. A protective buy stop should be placed at or slightly above 470.7000. For confirmation of this selling opportunity, you should look at a volume based indicator such as the On Balance Volume or Money Flow Index for confirmation.



Ravi Pathak

weekly chart of grasim suggest similar trend

Ravi Pathak

Grasim looks good shortin candidate as it has not broken trendline and highly probable to remain in the range of 1096-1427.short with the tgt of around1150 with stop at 1427 on closing basis

Ravi Pathak

Where are we?

Attached are the Daily/Weekly/Monthly graphs of Nifty as on 02/12/2005 and the conclusion will be obvious. Except that the daily chart shows weakness on closing at yesterday's close/today's open and on RSI cutting from the above over its trigger average line , the graph is fine.

 

Your 10 DEMA is 2661 and 5DEMA is 2685. Keep a tab on these figures and trade on the LONG side only. Weekly closing is NEW HIGH and the November Monthly Closing was also at NEW High and hence all vital statistics reveal the strength of the market. Moral of the lesson is DONOT GO SHORT.

 

Yes, the indicators will show extreme Overbought levels. But stay invested and be on the long side only, till you get the confirmation.