Whitney Tilson: a Sucker for BP ~ The Risk Averse Alert

Saturday, July 17, 2010

Whitney Tilson: a Sucker for BP

We are chalk full of blind guides. On any given trading day one easily could identify a "sucker of the hour" (courteous of that reliable feed, CNBC) ... there are so many. Laid bare are their every bullish argument ridiculously cited as though the global financial system were not vulnerable to collapsing overnight, literally.

Today's worst sucker, though, really is a special breed: the falling knife catcher. These carry forward in the spirit of the defunct Peloton Partners, failing to fathom the fallout from the seizure of the shadow banking system: that leverage it created can no longer be furthered, leaving the physical economy woefully exposed — incapable of sustaining the mountain of securities hanging in the balance.

Enter Whitney Tilson...

During Friday's Fast Money, "Word on the Street" Mr. Tilson claimed that, despite a fast and furious run-up from its recent bottom BP shares remain attractive. Thus, he is holding his position rather than selling into strength.


company chart (BP)

The ups and downs of BP's share price over the past fourteen years offer a vivid demonstration of how "support" and "resistance" act to alert investors of possible inflection points.

Consider the fact a long-term line of support just below $40 fell with Deepwater Horizon. This was a feat accomplished on historic volume no less. So, yesterday's support all the more is likely become formidable resistance, then.

Think how widely held is BP's stock. Now be sure its majority shareholders were by no means the fuller part of historic volume accompanying the stock's recent collapse. Rather majority interests added shares above support that, for a decade or so developed just south of $40 — support that, just recently gave out. Strong hands bailed. If no long position plans are being made by these hands presently, then guess what happens to share prices? That's right! They fall of their own weight.

Odds Whitney Tilson will prove prudent holding his BP position in anticipation of further gains are about as near zero as one needs to objectively call him a sucker. Pure and simple.

The matter of BP's collapse below March '09 support and now the present prospect of prices falling of their own weight, easily taking out recent lows in the $20s, further lends insight — a template — summarizing the outlook I have toward the broad market.

So, the natural question here, then, is what Deepwater Horizon calamity awaits? Surely, we are primed for it! There are more vulnerabilities than you can shake a stick at. What will it be?

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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

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