Commodities rallied significantly on Friday, probably to the detriment of more than a few who were short. We have serious doubts about this rally and fully expect a pullback as we find it hard to believe that the Europeans have finally resolved to fixing their issues. We would expect some issues to arise in the next few days, if not by today's close, with somebody not liking the agreement.
We will probably buy some natural gas exposure at some point this week, adding to positions we have been judiciously accumulating shares in throughout this downturn. We will report whatever we may buy, but it is our assumption that we will do these transactions with retirement money, so this will be a conservative move looking long-term.
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Oil & Natural Gas
Kodiak Oil & Gas (KOG) rewarded its believers on Friday turning in a very positive day on many fronts. The shares rose $0.71 (9.47%) to close at $8.21/share. Volume was 11.5 million shares and all of this demonstrates how leveraged Kodiak is to the price of oil. A few things to point out here, first is that this was one of the leading price gainers for oil and gas E&P plays. Next the shares did close above $8/share, which has been a level which has displayed support in the past and provided a launching pad for a rising share price. Maybe the most important aspect of Friday's trading is that the company had extremely strong volume, which has not been the case as of late, either for the stock or the market in general - so this we view as quite bullish.
Maybe we missed the ultimate bottom in coal, then again maybe we did not. The sector continues to send us mixed signals and when this happens it is best to stay away. Friday we almost purchased shares in Patriot Coal (PCX) for a trade as the beta on the stock is high and we knew the market would move higher into the close, but we decided to wait an hour after the open and by that time we had doubts based upon the chart. Good thing too, as the shares finished down $0.07 (5.43%) to finish at $1.22/share after opening quite strong. Volume was once again strong at 18.9 million shares. Compare that to how Arch Coal (ACI) performed along with the rest of the industry and you can see it was a disappointment, but a disappointment for the lesser players across the board. Arch has our interest as shares rose $0.39 (6.00%) to close at $6.89/share on volume of 16 million shares. After we make our purchases of the blue chip coal companies this might be our next entrant to the portfolio.
Vale (VALE) rose $1.07 (5.70%) to close at $19.85/share on Friday. With the EU now appearing to be proactive in attempting to fix their economic issues, the hope is that China's economy will once again start growing at a higher rate and in turn require more of the metals that Vale mines. The shares are near lows still and priced attractively. Investors must also remember the rich yield that the shares provide and at the current yield it provides about 75% of the gains one needs to achieve an 8% return on the investment. We find that quite impressive.
Copper made a big move on the news out of the European Summit last week, which in turn pushed up the price of copper equities. Freeport-McMoRan (FCX) finished Friday up $1.81 (5.61%) to close at $34.07/share. Volume was strong at 23.3 million shares traded and this was one of the better trading big-cap miners. The stock also had the rising price of gold to add further wind to its sails and if this good news can stand the test of time (which none out of Europe has been able to do) then we will see the stock at much higher prices.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.