It is unfortunate that we have rolling blackouts in various areas of the United States right now as these high temperatures demand higher electricity usage. This could all help alleviate the natural gas glut here caused by a warmer winter, but we have large areas using no power due to the overloaded grid. It is hard to win when the weather and other outside factors seem to be working against you, but we think that on any pullbacks investors would be wise to add to those stocks which we have previously stated are the best bets in the natural gas space (remember we like those adding NGLs and oil to production, not simple dry natural gas plays).
The jobs numbers shall be big today, but the commodity space has a chance to rally one way or another depending on the numbers because if they are good the economy could pick up pushing inflation higher and if they are bad we could move higher as well as QE3 becomes more of a possibility. It also appears that Iran may be prepared to walk away from the nuclear talks after having used them as a delay tactic and oil prices could get a boost from tensions in the Middle East rising with their meddling paired with the issues already taking place with Syria. Yesterday it came out that Iran has been conducting missile test to practice hitting around three dozen US military bases in the region should the country come under attack by the US or Israel (See link here via ABC News and Yahoo).
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Oil & Natural Gas
Chesapeake Energy (CHK) finished up $0.28 (1.45%) to close at $19.64/share on volume of 27.5 million shares. What is important here, and what we want to highlight this morning, is that the company's shares did trade over the $20/share level. This is getting closer to fair value until a sale of the company's Permian Basin assets are sold at some point during this year. The company has a lot on the selling block, but that is the asset with the most value and which will solve the most problems once it is sold. We think that the Utica acreage could be the easiest sale and will be quite interested to see what that asset brings on a per acre basis.
We are still waiting to confirm that coal is breaking out, and we will make that call once the big players break higher through their trend lines. Currently, investors have seen the risky coal plays move strongly higher on abnormally large volume as fears of them going belly-up have receded and the market now believes that they will make it through this downturn in the market. Patriot Coal (PCX) kept their winning streak alive yesterday having risen $0.42 (22.83%) to close at $2.26/share on volume of 41.8 million shares. It is obvious at this point that day traders are at work here, and for those short the stock we would hope that they have already covered. Looking at James River Coal (JRCC) also had a nice day yesterday rising $0.49 (15.61%) to close at $3.63/share. Volume here has been lighter when compared to that at Patriot (on a % change in volume to be fair). Yesterday volume came in at 5.8 million shares, which is about double the three month average, whereas Patriot Coal has seen 2-4 times their three month average. This is why we think that a retracement is in order as the day-traders exit.
Freeport-McMoRan (FCX) remains strong as traders expect QE3 or an improving economy, and the rate cuts by the central banks yesterday certainly did not hurt with the argument for further stimulus. Shares traded up $0.26 (0.74%) to close at $35.47/share. Volume was especially strong coming in at 28.2 million shares yesterday and if we get another batch of easing from the world's central banks then volume will remain strong and the share price shall continue its uptrend. Copper will take this higher during an upturn in the economy, but we think that the gold is the real kicker here, adding a floor in really tough times and adding further firepower when inflation worries kick in.
Speaking of gold, Barrick Gold (ABX) might be a place investors want to look to gain exposure for gold moving forward. It is not our favorite name in the sector but due to its size and scale along with the liquidity the shares afford investors it is not a bad way to play gold. The physical commodity itself has bounced off of its lows, but we think that investors could see a rise in gold prices before year end. Having a bit of exposure to gold at this point is not a bad idea and personally we have a fairly large portion of our commodity portfolio in junior gold explorers.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.