British Petroleum

So much for the "Damage? What damage?"  phase of BP's heavily engineered short-squeeze. Last week's selling created the bearish component of "dueling impulse legs" on the daily chart.  The stock appears to be weighed down by the reality of dealing with the spill legally and environmentally, and last week's price action suggests it could be a long slog before shareholders get another chance to bail out on a feeding frenzy.

There's no predicting how high this squeeze will go, although a doubling off June's $27 low should probably suffice to extinguish whatever temptation may have existed in this world at one time to short the stock.  Paradoxically, one cannot help believing that BP shares are destined to fall below $5 -- w-a-a-a-y below -- if one ponders Matt Simmons' version of the story.  He thinks the riser cap is just a stall tactic and that BP will eventually face tort liability for destroying the Gulf of Mexico and probably much more. Click on the link above and you may even find yourself agreeing with me that, most unfortunately, he still does not sound quite like a whack-job.

Put-holders should brace for a surge to at least 36.60 -- or possibly 37.81 if any higher -- if it appears that BP's latest oil-gusher cap is working.  Even if they manage to stop the flow completely, however, the company will face calamitous litigation in the years to come.  For now, though, with implied volatilities in the low-to-mid-60s, put options are prohibitively priced -- so much so that the prospect of making a profit with them seems dim even if the stock relapses. _______ UPDATE (July 13):  Fascinating.  BP gapped up to exactly $37.76 on the opening bar, capping a 15% run-up in just 12 hours of trading; then the stock plummeted to $35.71.  This may or may not prove be The Top, but it sure as heck was a shortable top.

Let me reiterate the 18.39 downside target first broached here a while back.  That's where BP is going at a minimum, and it is the Hidden Pivot target of a long-term trend off the weekly chart. A lesser pattern implies 18.05, suggesting we'll be able to do some bottom-fishing within a fairly narrow range just above 18.00. In the meantime, the stock's down(fall) has been too brutal for easy shorting along the way down, although it's still possible to squeeze off a low-risk shot intraday if you play close heed to a-b impulse legs on the 5-minute chart. _____ UPDATE (July 9): BP's two-week rally is just shy of invalidating the 18.39 target.  That would take a move above 34.46 -- point 'C', recorded June 11 on the way down; the so-far recovery high has been 33.90.

I'm not sure where the residual value will lie when BP is charged with cleaning up beaches from Trinidad to Aruba to Namibia and beyond, but the worst- case bottom I can project using the weekly chart is 18.39, a clear and important Hidden Pivot (A=77.69, B=33.70 and C=62.38).  That number looks like a lock-up to me.  Perhaps it represents a bid from one of the surviving majors?  Or maybe it'll be a tender from Kevin Costner, armed by then with a low-cost technology for undoing all of the damage.  Hey, whatever happened to Costner's Tom Swift contraption, anyway?

We may all be breathing a sigh of relief by the time you read this, but it remained uncertain at press time whether British Petroleum’s efforts to plug a massive oil leak in the Gulf of Mexico would succeed. Earlier in the day, the company began pumping a heavy fluid called “mud” into the damaged well, but the process was temporarily halted because the high-powered flow of oil and gas from the well was causing too much of the mud to escape.  BP said such delays had been expected but that they hoped to resume the sealing operation by late tonight.  The effort came amidst reports that oil has been gushing from the well at a rate much greater than what BP had first estimated. The company originally said that about 5,000 barrels of oil were escaping per day, but the latest estimates suggest that the true number is somewhere between 12,000 and 19,000 barrels. Converted into gallons, that implies that as much as 760,000 gallons of oil per day are flowing into the Gulf. Last week, we linked at Rick’s Picks a very scary article from rense.com that said the “top kill” procedure being used to plug the well was the world’s last hope to get the disaster under control.  The author, who sounded like he knew a thing or two about drilling platforms, explained that abrasive material contained in the gushing oil could eventually widen the well-hole so that virtually unlimited quantities of oil and explosive methane would be released into the water and atmosphere. We would strongly suggest that you read the article to understand what is at stake if BP’s effort fails. The only alternative at that point would be to drill an additional well to relieve the pressure.  This procedure is already under way, but