Seeking Alpha
Long/short equity, special situations, momentum, growth
Profile| Send Message|
( followers)  

Commodity markets took a hit yesterday, along with general markets, when Ben Bernanke gave no indication of further easing by the US Federal Reserve. We do find it a bit curious to shift viewpoints this early into the correction, but our guess is this will not be a hard stance - simply posturing.

We find Australia down 0.96% this morning, which does not bode well for commodities due to the heavy weighting of commodity companies on that exchange. The rest of Asia is weaker as well, with Korea being the sole bright spot up 1.33%.

Turning our attention to the various commodity areas we follow, we find ourselves a bit more cautious this morning.

Oil

Oil has been strong, as have individual companies within the sphere. Kodiak Oil & Gas (KOG) had been quite strong until their earnings yesterday which caused some damage to the stock. We would hold shares here, but put a stop on at the $9.50/share level. If stopped out, we will address where to put those funds the next morning.

EV Energy Partners, LP (EVEP) had a decent earnings call last night. Results basically were in-line, and the company should have their data room opened in the later part of the 2nd Quarter. They also expect to close a deal for substantially more than Chesapeake Energy (CHK) got for their acreage. Remember, EV Energy has some of the best acreage in the Utica, with mostly oil exposure and wet gas as well. They are partners with Chesapeake and are getting to work closely with them on drilling and data, which should be helping them in their own drilling. It will be very interesting to see what the next quarter brings us, and the 3rd Quarter should probably bring the news of a deal.

Gold and Silver

Bernanke really took the floor out from under these guys. We were testing resistance levels to the upside on gold yesterday, only to find it break down on news that further economic stimulus would not be had. Gold fell hard, all the way through $1700/ounce before regaining ground to trade around the $1720/ounce level which is where we find ourselves today.

Silver was hit just as hard, falling from $37/ounce to just above $34/ounce levels. Silver is still only trading in the $34.75-35/ounce range which we find a bit disturbing. We are long-term holders here, and will view this as a buying opportunity, although we would like to see silver hold the $35/ounce level.

Iron Ore

Seems the world may not be in an iron ore glut as many have been forecasting. As Bloomberg reported, see here, the world's supply will increase at a lower rate than at any time over the past decade. Cost, delays, permitting and many other reasons are driving the slow growth in supply and with a turning economy we could see iron ore prices rise sharply, if construction can get stronger in both the US and China.

Rare Earths

Molycorp (MCP) fell below $25/share for the first time since the end of last year and beginning of this year. Markets are not looking great today, but it will be interesting to see if shares can bounce back above the psychological area. We are a bit skeptical as we think this might be the correction we were looking for, but will watch nevertheless.

Potash

Agrium (AGU) held in quite nicely yesterday, and we are a bit more bullish after yesterday looking at the great numbers economically for farming states. There is a bull market here, and it should only get stronger with the economy and some inflation kicking in, so we will continue to watch. Agrium will be the diversified play in the sector, while Potash (POT) and Mosaic (MOS) will be more the pure-plays on fertilizer prices.

Source: Thursday's Commodity News To Trade On