We saw the commodity sector have a very good day yesterday with an across the board rally. We had very few stocks which were red on our watch lists yesterday and although we want to go bullish like the rest of traders out there we just cannot find it in ourselves to do it. It continues to appear to be a trader's market, and we fully expect another move downwards on bad news from Europe. The issues in Spain have not been solved, and to solve them would put Italy in peril. Until we can get some sort of a eurobond, then the Europeans will continue to put out these fires and so long as that continues we will have volatility in the market. We have been negative coal for some time, and we will have an article on the matter which we will submit tomorrow with our latest thoughts.
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Oil & Natural Gas
Chesapeake Energy (CHK) continues to show strength, rising $1.04 (5.89%) to close at $18.71/share. Volume was once again respectable at 25.5 million shares, and it continues to provide far more liquidity for big traders than other names where volume levels have pulled back a good bit. We are warming up to this one as we have stated recently, but will wait for a pullback to make our move. Whether it is via an option trade or equity we do not know, but we are interested in getting exposure here as it appears that the worst is now over. The company may get a boost in the months ahead as smaller players in plays such as the Utica begin to monetize their assets and may provide investors with higher valuations than what Chesapeake got from their initial sales. This is just something to keep in mind when trying to evaluate and value this play.
We continue to see strength in SandRidge Energy (SD) as shares remain above the $6/share level we said was where one would want to purchase their positions. In trading yesterday shares rose $0.33 (5.12%) to close at $6.77/share on volume of 11.7 million shares. This is a $10 stock masquerading as a $6 stock and eventually the market will need to readjust the price assigned to the company. We think that this will happen sooner rather than later and expect to see significant price appreciation by the end of the year.
Vale (VALE) impressed us again yesterday as shares popped $0.73 (3.77%) to close at $20.09/share on volume of 20.8 million shares. We are thinking that maybe these are some of the shorts getting chased out of their entrenched positions here based on the price action in recent days. The stock continues to turn in sessions where the daily chart simply rises from the lower left to the upper right. It may not always close positively due to the initial open, but it is bullish strength. We do not want to turn bullish just yet and buy, but it is getting to be that time it seems and on a pullback we will look at this one as it does provide a good yield to soften the blow if we are wrong.
Not necessarily an iron ore play, but US Steel (X) turned in a positive day yesterday with shares rising $1.74 (9.48%) to close at $20.15/share. Volume was 15 million for the day which was about 50% higher than normal. The company is going to benefit from the continued oil and natural gas drilling boom, and if the economy can turn higher then shares should get a nice pop. The jury is still out on this one, and we have only just begun to follow it and get a handle on it but we did want to bring it to your attention this morning.
Like Vale, our other metal company which is highly leveraged to the economy, Freeport-McMoRan (FCX), continues to impress. Volume was strong yesterday at 19.2 million shares as the price of those shares rose $1.19 (3.47%) to close at $35.45/share. This one really pops when it moves and it appears it has started a move higher. We suspect that there will be a chance to get shares lower, but really do not want to buy until we see sub $30/share levels if buying before the news about their mines in Asia and Africa. That is our belief of what is right to do in order to minimize risk, and we have learned the hard way of being on the opposite end of that trade before. You live and you learn, and we hope to save you from making the same mistakes we have made in the past.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.