Wednesday, October 10, 2007

Crack Spreads II

On Sept 27, I talked about crack spreads and put a picture to make you laugh, but the real deal was the price of the refiner stocks, and the prices advertised two weeks ago: Tesoro (TSO 47.14), Valero (VLO 67.56), and Western Refining (WNR 40.30). Today TSO closed at 55.25 up 8.11, VLO closed at 74.25, up 6.69, and WNR 41.75 up 1.45 from the crack spread piece. Did you laugh at the picture, or make some money off the information?

Today VLO announced lower earnings before the open. Some joker sold stock under 70 in the premarket, (probably the same clown that sold TSO down to 50 1/2 in the premarket despite getting an upgrade!) and that's where the specialist bought his stock. This was done by the pros to panic the public, who watch the pre-market prints. The correction in these stocks are already over, but they needed some pre-market prints to bag the last holdout longs on these stocks. The ruse used was the "news" of lower earnings, but at 7 times earnings, the hereafter is already discounted in these prices. So the stocks rally.

Now think about this. Do you really think that refining margins are going to stay this low? Of course not. But most people let stock prices affect their thinking at turning points, so they can't buy at bottoms. But if you look at some bottoms, you might just laugh enough to think about buying. Now that Wall Street reverses the stocks on bad earnings, and puts a green candlestick on the charts, the public can come in and buy. Wall Street will then say the bad news is already in the prices of the stocks. The difference is I'll tell you before it happens, while they tell you after it happens. The difference in price? I already did the math for you.

So here's the script as I see it. VLO rallies first because they have the biggest buyback (they bought back 11% of their shares the past year). TSO rallies next as it's a relatively cheap refiner with market rumours of a takeover, and WNR is the last to rally because it's hated by the street. And paradoxically, the stock loved the least, WNR is poised to rally the most, showing that in Wall Street, as in life, "the last shall be first."

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