There will be lots of economic news coming out today, but also Crude Inventories and as we are in the commodity space that will carry significant weight with some of our investments. Inventories are at extremely high levels and oil prices are at multi-month lows having gotten crushed yesterday. Gold is no different, and the safety that most people like to talk about when discussing this asset class seems to be tardy right now. There is no better way to describe how gold is about to turn in its worst year in over a decade right at the time Europe is standing at the edge of a cliff either about to fall off or be stuck in a compromising position for some time. These are the exact times when gold is supposed to attract investors, but it is not and this is due to its having gone mainstream over the past few years and during times like these people cash out their winners and also seek liquidity - which gold bullion does not provide.
Oil & Natural Gas
Chesapeake Energy (CHK) was one of the few energy companies we follow which was up yesterday, and on a Reuters article. Kind of an attention grabber actually, when a stock that has done nothing but go down on news breaking from Reuters goes up on news from Reuters - the irony was not lost upon us. The stock turned positive as the story broke, and it appears they will sell some East Texas acreage this year as a prospectus surfaced on a website of one of their advisors. Good news for investors, as it shows the company is serious about closing the funding gap and selling non-core assets to focus on the so-called crown jewels of the portfolio. The intra-day chart was quite impressive, and if the inventory numbers are good coupled with the other economic data then it will be interesting to see how this one performs today.
Kodiak Oil & Gas (KOG) had a rough day yesterday. They gave up the previous day's gains to close at $8.34 which was down $0.41 (4.69%). The shares traded lower all day and trading was range-bound, so there was very little excitement going on. What has been a strength for Kodiak for some time now may be a weakness - and that is oil prices. One could surmise that should oil continue lower, but natural gas bottom out, then traders might go short E&Ps with high oil exposure and long natural gas stocks. Not what we would do, but something to watch out for nevertheless.
EXCO (XCO), the Wilbur Ross backed natural gas play, was down $0.68 (8.59%) to close at $7.24/share. The price action here would seemingly contradict everything we just said about Kodiak with the possibility of traders moving from oil to natural gas, but one has to remember the recent trading in this one which was seemingly up every day for a one to two week period. Volume was high on this one as well, coming in at 7.3 million so there is interest in this one. At the end of the day it may have been a short covering rally earlier and now the shorts are rebuilding positions, either way we are staying away as there are much better plays out there.
Cheniere Energy (LNG) up until yesterday had held in pretty strongly, and close to its highs. After falling $1.26 (8.06%) shares finished at $14.38/share on volume of 3.9 million. Natural gas prices rising has not affected the prospects for this play as they will make plenty of money with prices even 50% higher from here by our calculations. It will be interesting to watch what congress does as some are wanting to forego natural gas exportation on a large scale in order to use natural gas as a transportation fuel here. This is a small contingent of Senators and Representatives, but when discussing politics and laws it is possible for anything to come out of Washington. If a bill to use natural gas as a transportation fuel is passed, even without cutting back on the LNG export allowances, then Cheniere could be in some trouble as that would really pump up prices (no pun intended).
James River (JRCC) was down $0.38 (12.75%) to close at $2.60/share on volume of 3.5 million. This is one of the bottom tier coal companies, and the way investors fled yesterday gives that statement further credence. Investors are fleeing the sector, but starting from the bottom up. We will not see a bottom in the coal stocks until the big players are taken down hard and that is when we know capitulation will have hit and that a recovery is underway. The recovery will be slow, and not V-shaped, and this is why there is the flee from lower tier coal stocks - investors are not sure whether the poor sisters of the industry have the cash flow, capital or financing in place to survive the downturn which appears inevitable. This will be one of the proverbial canaries in the coal mine, so to speak, and everyone should watch to see how it trades moving forward. We are not buyers here.