Commodities were among the hardest hit yesterday as markets reacted to what we would describe as abysmal economic news here in the U.S. Europe is not helping with once again promising to renegotiate terms of the bailout package for Greece. It seems that the chips are stacked against those of us with positions in the commodities space, but this is why we have been accumulating cash. We think that there will be a buying opportunity in the near future and one will be able to set up long-term positions or ones to trade on.
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Oil & Natural Gas
Chesapeake Energy (CHK) was down $0.92 (4.83%) to close at $18.12/share in yesterday's trading. Volume remained strong, coming in at 26.6 million shares. Much like the rest of the industry, Chesapeake was down as oil prices were hit hard, falling to multi-month lows. The company's next conference call will be interesting as everyone in the industry knows it is difficult to hedge liquids production and with liquids priced based off of oil the cash flows shall be impacted to some extent. It seems more and more in the industry are buying into the company's philosophy of lower nat gas prices requiring a focus on NGLs and oil exploration, and at a break neck pace.
That brings up Encana (ECA) which got hammered yesterday with shares falling $1.85 (8.53%) to close at $19.83/share. Volume exploded to about three times higher than the three month average as investors were worried about the company's changes to capital expenditures to increase liquids production. They should have called it the "Chesapeake Plan" as it is quite similar with plans to spend above their cash flow generated. With the drop, Encana fell below its 200 day moving average, which shows the pressure that the shares have been under lately.
SandRidge Energy (SD) finds itself in a familiar place, with shares having fallen $0.45 (6.93%) to close at $6.04/share. Shares closed just above the low for the day yesterday and just above the $6/share level where we have previously found support. We shall see if the $6/share support area holds going forward, but with oil prices as weak as they are we have serious doubts that they will. Remember, the company was supposed to be hedged and financed until they could get to breakeven cash flow, but with oil prices headed lower, in turn dragging NGL prices lower, that period in the company's future may be pushed out further. Something for investors to watch out for moving forward.
Cheniere Energy (LNG) had a pretty ugly day as investors walked away from the risk-on trade. We have stated numerous times what when the risk-off trade surfaces in the market that is when one wants to rotate out of here as this has a tendency to fall hard. Shares finished at $12.23/share having fallen $1.45 (10.60%) on volume of 10.6 million shares. We expect this type of trading on risk-off days, and would advise readers that adding shares once it appears the risk-off trade is abating. Oddly enough natural gas prices were up yesterday, which may have even added to the losses. We expect a pullback in natural gas though, and do not expect $4 gas anytime soon, so the company should be clear to make plenty of money when they get up and running.
Over the past few months we have discussed how Freeport-McMoRan (FCX) is a play on the economy. Rising sharply as investors feel better about the need for commodities and overall world growth and falling hard when European and Chinese worries creep into the market is how this one trades, and rightfully so. Yesterday it was the U.S. economic fears which put shares lower by $2.32 (6.57%) to close at $32.99/share. Volume was 22.2 million shares, and investors saw that the gains from the past week disappeared rather quickly in that trading. The company did get hit across the board as copper was lower along with gold which is approaching recent lows as the Fed seems content to sit on the sidelines for a bit longer.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.