It was another tough day in the commodities arena yesterday, however we did see some of the hardest hit players rally into the close. That is a welcome sign when considering the slow meltdown we have been watching in the commodity space recently but it does not solve the issues we currently face.
Sandridge Energy (SD) rallied yesterday into the close erasing their losses from earlier in the day. The company also announced that they had increased and extended a credit facility, which should alleviate some investor fears concerning the company's ability to fund drilling moving forward. It by no means solves their issues in totality, but it does add a small cushion and gives them breathing room as they further develop their acreage. You can read the press release here.
Chesapeake Energy (CHK) has been cutting back on natural gas production and had previously positioned their capital expenditures to focus less on natural gas and more on natural gas liquids and oil, which is turning out to look a bit more brilliant each day natural gas sets a new low - which is more often than not it seems. Natural gas set a 10-year low yesterday and this started a new round of discussions on whether natural gas was a buy here or a sell. Let us remind our readers that natural gas has gone to zero and below in developed countries before due to a glut of the resource, and it is quite possible that this could happen in America. We are reminded to never say never when it comes to markets, and this would be something that nat gas bulls should keep in mind as well.
Kodiak (KOG) had a strong day yesterday, pushing higher and performing far better than we would have figured based on the recent sell-off in commodities and the stock's performance during that time. As we stated yesterday we are still bullish of their prospects long-term, but we saw some better opportunities in the US where that capital could be placed. Capital allocation is the name of the game, and based on trading today we may have some positions to disclose come Monday.
Gold & Silver
A quick look at precious metals markets today has gold holding above the $1660/ounce level and silver creeping towards the $32.50/ounce level. We are on the sidelines holding what we already have here, but waiting for a buy signal which has still not yet surfaced. Nibbling at silver on pullbacks, but not for gold for reasons we have previously discussed at length in other articles.
Molycorp (MCP) has held in strongly, and actually led the rare earth rally, which we were one of the first to see coming, higher through this turbulent market. Yesterday we were surprised to see both Molycorp and Rare Earth Element (REE) as the only two commodity stocks on our screen higher, and near the end of the day it was the entire rare earth sector. These two have led the way, and investors are starting to take notice of the strength here. The prices for some of these companies are ridiculously low, and it appears that risk-on is now returning to this sector of the market. Betting on higher prices is the way to go at this time.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.