First post on Vanguard Resources [VNR]

On December 11, Moody's downgraded VNR to B3 with a negative outlook.  Negative, of course, because oil prices will just keep going down forever.  The same positive feedback bias that spirals stocks into the stratosphere eventually turns negative and every glimmer of hope is lost.  This is also known as blood in the streets...

To make things worse, VNR subsequently cut the divvy to its common by 75% but left the preferred divvy at full value.  That might sound horrible but the company is still offering a 10% annual divvy at today's share price even after the divvy cut so you can see that new buyers were making serious bank on this before the cut simply due to the falling price.  Those in it for the long term have gotten screwed simply because their capital has gotten obliterated by 90% from the peak, all within the course of 18 months.



I hope it is sinking in to people that this collapse is definitely on par with the great depression.  In other words, all the excess speculation has been beaten out of the shares.  Does that mean the company cannot BK at some point?  Of course not.  It only has 19.5 mn cash holding down 1.89bn of debt.  If the cash flow were to significantly dry up then this could BK.


Cutting the divvy to the common like they did absolutely screws those who bought in at higher prices but the shares are still attractive from a divvy % point to new buyers and of course those are always the ones who count.  In fact, the shares are a bit safer now because the divvy cut means that many tens of millions are now freed up to pay down the debt.  That divvy payout from cash flow is why this one really didn't need a huge cash pile in the bank.  The investors were essentially the cash reserve and now they have been tapped.

So where to from here?  Can someone who is analyzing the fundamentals have any clear idea?  I think not!  This is not trading on any real fundamentals but rather on emotion and the only fundamental tracker of that that I have ever seen is Elliott waves.  And so below is my primary count for VNR.  The red count is not primary by very much.  I would say 60% chance red, 40 blue but it really matters what happens during the next trading session.  If this cannot break out then it will get reflected downward and the percentage moves at these low dollar valuations are just staggering.

If this does break out above resistance it is still not assured that the bear is over.  It might just be filling the gap at $4.40.  But it certainly bodes well for the shares if it is not deflected down hard on Monday.  Keep in mind that the holiday trading has been light.  So when the whales come back off vacation they might look at this and say "sell the rally".  But if they do then I think this becomes a screaming buy because of the divvy alone will be 15-%18% again for new buyers and with Moody's just rating VNR at (still investment grade) B3 it suggests that someone at least thinks that imminent default is not very likely at all.  That's quite a nice incentive alone, forget about the capital appreciation potential for having bought low.

Besides, one more wave down and I would have to call the motive wave complete.