In regards to the commodity stocks we own, it was a mixed day yesterday. The rare earths were up, from the big caps to the small caps but our oil stocks were down for the most part. It is our belief that we are consolidating before another move upwards, but we also recognize that commodities are going to be competing with high tech for the risk-on dollars going forward. This is one of our more interesting ideas, and we have taken a bit of heat for it, however everything in life is about supply and demand -basic economics and right now there is a huge demand for social media stocks and not enough supply. There will be a flood of issues after the Facebook (FB) IPO and that should certainly be the time when commodities will then become leaders in the risk-on trade once again. We think that with all that new supply of sub-par companies coming public after Facebook that capital gains will shrink in that sector and investors will gravitate back to the commodity sector which is in a long-term bull market.
Chesapeake Energy (CHK) made a brilliant move into the Utica, beating their rivals and locking up a large swath of land in the best parts. Each day the move looks a bit more brilliant, and with news yesterday that BP was moving into the northeastern part of the play with an 84,000 acre lease to explore the liquids rich play, we realized just how cheaply Chesapeake acquired their acreage. We think prices are going higher in the play, especially after companies have data to back up initial well results. We are bullish all things Utica - especially those located in the Oil and NGL windows.
Those stops our readers and clients had been using for Kodiak Oil & Gas (KOG) were triggered yesterday. We had those in place to protect trading gains and we will be looking for places to put this money. It could very well go back into Kodiak as it did last time, or we could take the gains and pair them with our gains from other recent trades and move elsewhere. At this time we are undecided and have a few stocks on our watch lists which are nearing our buy zones, so we will keep you posted in the coming days.
Gold & Silver
Gold could not break through the $1700/ounce level, let alone even test it. The precious metal found support at the $1680 level late last night, however this morning it has broken through that level to the downside a few times. It is still in the neighborhood, but it looks like the bulls did not have a lot of conviction and the bears are back in force.
Silver is much the same. After breaking through the $33/ounce level yesterday it was unable to hold that level and is now a bit lower, although still above the $32.50/ounce level. Silver is the place to be if you believe we are going to see lower rates and an improving economy, that has been our belief for years now and our conviction level is quite high on this.
Molycorp (MCP) led rare earths higher yesterday on the news that earnings at China's rare earth companies were up. Earnings were blown away and it appears that China is going to take on the US and EU in regards to their WTO complaints of rare earth hoarding. All of this is bullish for rare earths and we were lucky to have been bullish here the past few days. The entry point on Rare Element Resources (REE) was excellent and Molycorp is above $32/share. MCP was one of the largest percentage gainers on the NYSE yesterday and it finished strongly as the market wavered towards the close. It will be interesting to see if the gains and more importantly the momentum are sustainable.
It looks like Freeport-McMoRan (FCX) will have to wait to see what Indonesia will impose as far as taxes on raw materials until sometime later this year. The Reuters story is located here. This does not remove the possibility of taxes being imposed, it just delays them. The stock is getting cheaper and nearing where we would begin to be interested in accumulating some shares, even given the risks faced in Asia and Africa.