BP - Did they really lose 35% otheir value in just over a month ?

Warren Buffet once said - "Be Fearful When Others Are Greedy And Greedy When Others Are Fearful".

If you ask today most people if they are willing to buy BP (BP.L) shares they will give you a dirty look and kindly advise you to check in with at the closest mental health clinic. Most people are not what we would consider successful in  their investment they will usually buy a stock near the pick and sell around the bottom.

The reason for that are simple, we humans are driven by our emotions fear and greed. I would suggest for you to take a close look at BP's financial and think again if their current share price is justified or is it just that people are scared.

Let's look at the facts :

- BP's earning for 2009 amounted to over $243B ,their net income was $16.5B

- Their average net income for the past 5 years has been $21B

- Current Market cap is $122B which means a multiplier of 0.5 on earning and 4.5 on net income.

Let’s assume that the cost for BP to fix the problem and clean the bay will reach $1B and law suits that will take years to resolve will cost them another $1B . So over the next couple of years it means a 5% reduction in net income. Does that justify a 36% drop in share price ?

Another approach would be run a technical analysis exercise on their chart.

Share price dropped 36% since the beginning of the crisis forming a triple bottom together with October 08' and March 09' ,each time the bottom seems to inch a bit higher than the previous one. BP has held on to the 400p support twice in the last 2 years.

Let us assume that the BP is in a bearish channel we know that for every action there is a reaction ,Fibonacci retracement provide us with use useful clues on the target price for the corrective move.

The 23.60% the closest line which is the minimum and stand @ 471p  ,the 38% is @ 507 and the 50% which will determine the overall direction of the  trend is  far away at 536p.

I am not in any way advising if one should speculate on the movement just take a look at the facts and decide for your self.

Shai Heffetz
Head of InterTrader.com

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