Commodities were looking ugly yesterday with the crude inventory numbers coming in at highs and oil breaking through the $90/barrel level. So much in the industry has been staked on oil prices as they influence the natural gas liquids prices too. So we saw many good plays putting in lows and down strongly in early morning trading. The commodity plays were also the last to join the rally and that was a bit worrisome as we watched our screens yesterday and had to wait for the lag to end. That is important to note, because this was not a rally by commodities but simply a rally that was so strong that commodities eventually were taken along for the ride.
With another above average day of volume, coming in at 21.6 million shares, Patriot Coal (PCX) was one of the most actives yesterday. This was on the day after the company had its stock price fall by over 50% before recovering to finish down 30%. Shares finished up $0.48 (22.02%) to close at $2.66/share as fears are easing as investors await information on credit facilities/lines that the company is setting up. Analysts however are taking a cautious tone in their reports towards Patriot, and so too are the credit agencies - which brings up the question of whether the professionals are being reactive or proactive. Based on price action it sure seems they are being reactive, as is usually the case. We are still not buyers at these levels and will not be until we actually see a bottoming out in the industry - that is the only way you can play the weakest player in the industry, because if things get worse they are always the ones to bite the dust first.
Oil & Natural Gas
Chesapeake Energy (CHK) had volume of 35.8 million while trading up $0.17 (1.14%) to close at $15.09/share. The stock had a nice intra-day recovery which did coincide with the broader market as it too recovered. If the company can ever put their issues behind them, then this could be a really good way to play a rebound in commodity prices and a resumption of deals in the industry.
SandRidge Energy (SD) rose $0.24 (3.89%) on volume of 12 million to close at $6.41/share. The company had a very strong move upwards as the market recovered and closed $0.02 off of the day's highs. The company continues to develop their Mississippian play in Oklahoma and Kansas and we believe that they should get a boost once Chesapeake monetizes their holdings in the play as we believe that will set a new high for acreage prices there but ultimately will not result in a high water mark, that will come later.
Kodiak Oil & Gas (KOG) made an impressive move off of its lows for the day and finished 5% higher once those were put in place. The company's shares rose $0.12 (1.43%) on volume of 6.3 million to close at $8.49/share. The move upwards lagged the rest of the sector, but as is the case with SandRidge too, they have not been hit nearly as hard as other players due to their production being heavily weighted towards oil.
Some are expecting the uranium sector to heat up again as Cameco (CCJ) filed a Preliminary Base Shelf Prospectus for C$1 billion. Analysts are speculating that this could be used to fund future acquisitions of miners actually in production or with prized assets. The stock rose $0.14 to close at $19.24/share on volume of 3 million, but what was impressive is that it was up on this news and that it rallied $1 from the day's low to its high - and it is important to note that it did close near its high too.