3SOF

Great posts and strategic thoughts on this thread. One only has to think of the internet bubble to see that it is possible for a stock worth nothing to rise 10 or 100 fold.  Over the long term  they come back to zero.

It is a speculator's job to anticipate what the crowd will do ... and I believe they will buy anything related to oil, anything. I've seen this phenomena repeat itself several times and it will probably happen again. Of course, the final rush only comes at the very final stages of the bull market ... probably AMEP.OB will be lying on the floor until oil gets to $80 a barrel, and then, only then, it will rise 1000% or more in a few days ... we'll see. I see the problem this way: if the stock gets delisted or something I will lose 6.66% of my portfolio. If it goes up 1000% I'll make a 66.6% profit. This looks like a good risk/reward ratio so I'm keeping the stock for the medium term.

American Energy Production Inc. Announces 2nd Potential Re-Entry of Barnett Shale Well on 12 Well Bend Arch Petrolem Inc. Project
Tuesday June 28, 9:01 am ET


MINERAL WELLS, Texas--(BUSINESS WIRE)--June 28, 2005--American Energy Production Inc. (OTCBB:AMEP - News) announced today its wholly owned investee Bend Arch Petroleum Inc. is in the process of filing permits to re-enter another well in the Barnett Shale formation located on its 12 well Palo Pinto Project.
Charles Bitters, President of American Energy Production Inc. stated, "This well is in the same vicinity as the Barnett Shale oil and gas well on the 12 well project that has produced approximately 15,000 barrels of oil and 45 million cubic feet of natural gas since July of 2004. The difference with this well is it has 5 1/2" production casing which will allow the well to have a 1000 to 1500 foot horizontal leg drilled instead of being a vertical well. Usually a horizontal well will produce more oil and natural gas than a vertical well. The company is very excited about the potential for this well because it will allow a more extensive evaluation of the oil and natural gas lease holdings in the area."

Bend Arch Petroleum Inc. will continue its aggressive drilling and exploration program in the Barnett Shale formation. With today's record high prices for oil almost $61.00/barrel and almost $8.00/mcf for natural gas, Bend Arch Petroleum is in a great position to benefit from these prices because the Company has accumulated over 7,000 acres of leases that have potential Barnett Shale production.

Bend Arch Petroleum Inc. and Oil America Group Inc. of Dallas, another 100% owned investee of AMEP, plan to offer drilling partnerships to potential investors to drill Barnett Shale wells on the above mentioned properties in the near future. For more information contact Joe Christopher at Oil America Group Inc.

Statements contained in this release, which are not historical facts, may be considered "forward-looking statements" and are based on current expectations and the current economic environment. We caution the reader that such forward-looking statements are not guarantees of future performance, unknown risk, uncertainties, as well as other uncontrollable or unknown factors could cause actual results to materially differ from the result, performance, or expectations expressed or implied by such forward-looking statements.


http://biz.yahoo.com/bw/050628/285492.html?.v=1

On the prior analysis I said I had my usual 6.66% in AMEP.OB but I wasn't right, I have only 3.33% as you can read on the beginning of the thread.

Today the stock didn't behave well, but we have to consider oil came down more than $2 a barrel today ... these micro cap oil stocks are like options to the oil price. With oil at $40 they're worth zero, with oil at $80 they are worth at least 10 times more where they are now.

I believe oil will hit $80 before $40 so I'll make 1000% first than I lose 100% on this position. That's the speculation I'm in.

Volume picked up nicely on AMEP.OB today, which is nice. As long as the stock gets attention everything will work out fine for bulls.

This just sent to me from Momentum traders network today.

Good news for small oil Companies in the US.

Energy Bill Passes Senate, Fueling Domestic Production

"Tuesday, the US Senate approved legislation revamping the nation's
energy policy. The energy bill, which was approved overwhelmingly by an 85
to 12 vote by lawmakers, aims to reduce US dependence on foreign oil.

Standing in the middle of these actions are the often overlooked
smaller North American domestic exploration and production companies,
commonly referred to as "juniors." But with lofty prices and strong demand,
some of these junior oil companies are outpacing their larger peers,
though the market has yet to realize it. "

Thanks johnbmcginnis, nice info.

My wife is complaining about me holding this stock. She says AMEP.OB is for too long on 3SF portfolio and I'm losing too much on this position (24% with 3.33% of total equity).

After saying her place is in the kitchen (lol, forgive me this woman), I began thinking perhaps she's right - many times in the past when I have embraced a fundamental story I lost money, big money !

But this time I took some precautions (learning from past experiences). I have only 3.33% of equity in each micro cap oil position and I have 4 of them, just in case I'm right on the macro story but unfortunately pick some stupid stock that refuses to climb. This means I have about 13% of capital at risk in this oil bubble story.

Of course I won't average down my price (since everyday my stocks go down I'm more away from being right and closer to being wrong) and I've decided 4 stocks is enough, so I won't buy anymore into this story, I got my stake now let's see how the whole thing with oil plays out.

Considering AMEP.OB we have a positive divergence between price and volume, that is, price is going down but volume is increasing on the way down, which means buyers are being attracted by the lower prices.

It is possible for the stock to come down to that support line on the chart at $0.106. It would be a sad thing to see, -50% on a 3SF portfolio stock, but I can live with that. Expecting a 1000% return we must be prepared to be in the red for 50%, that's all about penny stock trading.

Nothing new on AMEP.OB, a minor reaction to a minor support at $0.013.

AMEP.OB is leaving big tails on the last 3 candles. This means there's some bargain hunting during the session when price goes down. I'm not sure how to interpret the lack of volume so I'll just recognize the fact.

I'm holding AMEP.OB for the coming oil bubble.

David,

Still wondering why you put yourself through this 

Try to look at the intraday chart. You will see that AMEP is traded down under heavy volume dureing the trading session and then traded up under light volume at the end of the day. I wouldn't call this bargain hunting but rather selling pressure IMHO

Mike

The premise for your bet on the small cap oil stocks is that they will benefit from the so-called oil bubble rather than the fundamentals of the stocks. (god knows the fundamentals of AMEP doesn't look good!)

My point is that your premise is wrong.

I would define a bubble as irrational pricing of a product or commodity in this case oil, which is not support by actual demand and supply. For stocks a bubble could be defined as an irrational pricing based on unrealistic expectations to future earnings. The idea is that any company that is associated with oil will go up disconnected from the fundamentals. Investors are afraid of being left behind and will buy whatever is put in front of them. Similar to the tulip bubble in Holland and the Internet Bubble in US.

But is there an oil bubble? The demand seems very solid driven by the growth in China and supply is expected to go down, as the world's oil wells will be depleted. For me at least the oil price seems to be supported by supply and demand. After all it is a well-known fact that we are using more oil that we are finding so the clock is ticking. (read here: http://society.guardian.co.uk/societyguardian/story/0,,1491029,00.html)

The other question is if the prices of oil stocks are disconnect from their future earning potentials. In my opinion they are. Most oil stocks are traded at PE's between 9 and 18 despite their rapid increasing earnings. I believe the oil stocks is lacking behind the fundamental changes in the industry. But is it a bubble? Well it seems to be the opposite!

Now with investors being presented for what I consider an abundance of very attractive oil stocks at very low valuations why would they invest in high-risk penny stocks without earnings?

You might see an oil bubble later when NLG.TO trades at $100  but I think you are way ahead of the curve.

I have been wrong before and I will be wrong again so don't kill me if AMEP will close at 00.025 on Tuesday. (I believe all oil stocks will have a good day on Tuesday!)

I do believe (or is it just a hope, because I have several small oil-stocks?) that these small stocks will react to the rising oilprices.

Friday was not very incuraging, maybe due to the long weekend?

But read this:

http://news.moneycentral.msn.com/provider/providerarticle.asp?feed=OBR&Date=20050704&ID=4937700

So, I'm pumping my bicycle - don't want to pay the horrendously expensive gasprices here in Denmark - and I hope for the best for the stocks tomorrow.

I do agree that the big problem seems to be the lack of refineries.

One oil company worth keeping an eye on is SU, this one I wish I had bought quite a while ago!

Cheers.

Michael, excellent points (applaud), although I sincerely hope you are wrong this time! 

Your question of the existence of an "oil bubble" and the affect on small cap oil stocks was an interesting read, and prompted me to wonder if alternative energy stocks might be a better bet as oil supplies decline (longer term, of course).

I'm back in for 60,000 shares at .016 lots of buyers showed up from somewhere didn't want to miss a run

Nothing new on AMEP.OB so I'll just consider Michael's interesting analysis.

QuoteI would define a bubble as irrational pricing of a product or commodity in this case oil, which is not support by actual demand and supply. For stocks a bubble could be defined as an irrational pricing based on unrealistic expectations to future earnings. The idea is that any company that is associated with oil will go up disconnected from the fundamentals. Investors are afraid of being left behind and will buy whatever is put in front of them. Similar to the tulip bubble in Holland and the Internet Bubble in US.

This definition forgets one simple thing: the market is made of people, buying and selling. Not of accountants, not of financial analysts with complex valuation metrics, but made of people that goes to work everyday, reads the newspapers and watches the news.

I define a bubble out of the degree of public participation. If there is a macroeconomic story that is known by everyone and his mother and his grandmother, we certainly have the potential for a bubble. A bubble occurs when misinformed people enters the market, it goes beyond any logic because people who are buying the shares don't follow any logic that Wall Street uses in its day to day trading, like news, valuation, technical analysis, whatever.

The public is asleep, doesn't even considers entering the market ... but the story bangs their heads everyday, at lunch, at dinner, everytime he goes filling up his car with gasoline.

Suddenly, almost at the same time, everyone concludes he must buy stocks on that sector. And stocks rocket higher, much higher than anyone «rational» could have thought.

I see a bubble coming when there's a sector where, although the story is known by everyone on the planet, the sector is still rising (it shouldn't, because if everyone is a bull who is left to buy? It could only go down). This means the story is gathering momentum and entering in the outsider's mind. It is passing beyond the usual investor or trader, it's getting into the crowd's collective mind. For some reason the book is called «Extraordinary Popular Delusions & the Madness of Crowds». It's not called the «madness of investors», or «madness of traders». You can't understand the crowd behavior using investors or traders analytical tools.

I want to tell you a story: I used financial metrics to conclude internet stocks were very overvalued in 1998 and the beginning of 1999. But at the end of 1999 I concluded that it was a bubble and entered the market to buy everything I could on that sector and many stocks rose thousands of percentage points in the following months. Of course, they crashed after, it was a bubble, as we know today.

Now, think oil goes above $80 (options for December delivery are already trading considering oil will be $80 when at that time). Oil will be necessary for a very long time still, even if we get into new forms of energy, the global change takes many years, at least 5 to 10 years in the developed world. Everyone knows oil is a limited resource, and somewhere in the future I see a lot of people needing oil and there won't be enough for everyone, there's no time to build the needed capacity. What you get is a lot of people wanting and needing oil and just a few companies who have it, and those companies, in the publics mind, will be very valuable.

In this scenario, who cares about valuation? Who cares about fundamentals? It is a bubble right because it is not related to fundamentals, but with a story that penetrates the crowd's collective mind.

QuoteNow with investors being presented for what I consider an abundance of very attractive oil stocks at very low valuations why would they invest in high-risk penny stocks without earnings?

Medium and large cap stocks will rise a lot, something between 50 and 200%. Micro cap stocks will rise between 1000 and 2000%. It's how the bubble works, when the bull market is half way. From January 2000 until March 2000, which were the stocks that rose more? Cisco Systems? Amazon.com? Ebay? Yahoo? Or much smaller names, many that don't even exist today? The stocks mentioned rose 100% or so (the ones with «attractive» fundamentals), but many small and micro caps related to the internet with no value whatsoever rose thousands of percentage points.

How do you explain this? Madness of crowds my friend ...

Back to AMEP.OB, the fever didn't caught steam yet, the moves from this stocks will probably last just about a month or two (the last month or two of the oil bubble), and perhaps we're still about 2 months away from that ... but I can feel it, I've seen it before and I will surely see it again.

"Needless to say, everyone already knows who will be the big winner this earnings season - energy stocks. The only thing of importance I could see in the tape is a true desire to get long energy ahead of the news".

-The Kirk Report.


Each week I keep adding on the dips. 

3 News stories in 1   

http://biz.yahoo.com/bw/050706/65289.html?.v=1

Up nicely on pre market.. Lets see what happens now.. glad I was fortunate enough to get back in yesterday