BP Upgraded Even as Questions Remain

Posted May 5th 2010 10:00AM by Mark Fightmaster
Filed under: Analyst Upgrades and Downgrades, BP p.l.c. ADS (BP), Technical Analysis

U.K. brokerage house Panmure Gordon upgraded BP (BP) Wednesday, elevating the oil company rating to buy from sell. Panmure Gordon contends that the market reaction to the oil spill in the Gulf of Mexico is overdone, citing that it is unlikely BP will have to cut its dividend.

The oil firm could pay as much as $2 billion to bring the well under control, the rating house said. In addition, BP will have to pay 65% of the estimated $10 billion cost on damage to fishing and tourism along with $75 million punitive damages. Yes, BP could be fined $75 million for destroying the Gulf of Mexico (more or less). This fine could become greater if BP is found grossly negligent or if it engaged in willful misconduct.

Technically, Panmure Gordon may be onto something, as BP did rebound yesterday. The stock bounced off the $48 region a bit and the stock opened near the $51 region. Some may see this as a positive development. Of course, BP's 10-day moving average was pulled into a bearish cross of its 20- and 50-day counterparts. Often times, this formation is a bearish development. Is there room for the stock to run before hitting this trendline? Yes. But more news crops up every day, and lately it hasn't seemed to be very positive for BP.

Expanding our look at BP, a weekly chart of the equity shows that its 10-week moving average is in the midst of a bearish cross of its 20-week cohort. As this technical formation completes, the tendency should be for the stock to continue to slip. This is not a good technical sign for the oil company.

Fundamentally, the picture isn't great. Reports surface on a daily basis about how much oil will be spilled into the Gulf and how far this spill will spread. Further fundamental questions were raised by my colleague, Joseph Lazzaro, who sums up the unknown about the oil spill.

Tags: BP, featured, Gulf of Mexico, Gulf of Mexico oil spill, inthenews, oil, oil spill