It appears that we will see markets moving higher and we would watch the oil/natural gas and coal sectors. Both exhibited strength yesterday, and it will be interesting to see if investors can build upon that strength moving forward. We see a lot of news on the horizon for both sectors and feel like executives on both sides of the aisle will try to discuss how bullish their business prospects are looking over the next 6-18 months. Both can succeed moving forward, but both can struggle as well and it is quite important to remember that for both to succeed that coal will eventually have to take market share from natural gas which would inflict some damage upon the natural gas market. It is always interesting how markets move and how consumers decide on what resources to consume.
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Oil & Natural Gas
SandRidge Energy (SD) had a stronger day yesterday than the closing numbers indicate. The shares once again found support around the $6/share level yesterday and rallied to close higher by $0.04 (0.65%) to close at $6.20/share. Volume was strong with 11.1 million shares trading hands. Shares bounced off of the $6.02 low for the day numerous times and this further strengthens the support here. We noticed that shares backed off into the close but the chart clearly rises from the bottom left to the upper right and that is a trend we always enjoy seeing in the charts of those companies we are following.
Kodiak Oil & Gas (KOG) continues to show strength and shares rose $0.05 (0.59%) to close at $8.58/share on strong volume. There is resistance around $8.80/share short-term but the real resistance is at the $9/share level and this is where we would be watching to see if shares can power higher and through this level. So long as the $8/share level holds on the lower end investors should be fine. If that level is broken on the lower end, then investors might very well have some issues to deal with moving forward from that point.
Cheniere Energy (LNG) received $3.4 billion in firm lender commitments which super-charged shares sending them higher by $1.43 (10.10%) to close at $15.59/share on volume of 15.5 million, which also surged. This answers some of the questions the talking heads have posed about where the company was going to obtain financing from, and takes a good bit of risk out of the equation. Now it is important that the company does get the project built and completed under budget. That is always tough to do in the resource and commodities world, but based on this being an infrastructure play we do not think there will be cost overruns like investors are accustomed to seeing when a new mine is being built for instance.
Not all natural gas and oil companies saw their shares rise yesterday, but we were surprised to see that Chesapeake Energy (CHK) actually traded lower, especially as T. Boone Pickens was on CNBC saying very bullish things regarding natural gas. Chesapeake is leveraged to natural gas, even as they try to diversify away so as go natural gas prices so too shall go Chesapeake's share price. Yesterday shares fell $0.42 (2.20%) to close at $18.66/share on volume of 19.6 million shares. Look for news out of the Utica as these well results begin to trick out over the next 1-2 months. These will be the first wells which have used the new technique that has successfully been deployed in the Eagle Ford so we expect IP Rates and production numbers to be twice as high as the previous Utica oil results.
Coal stocks started off yesterday's session trading at new 52-week lows for quite a few names as others got very close to taking out their old 52-week lows. Alpha Natural Resources (ANR) actually set a new all-time low yesterday as shares were falling in the morning, but T. Boone Pickens did say good things about natural gas and also coal too. That helped give shares across the board in the sector a little bounce but in reality not a lot traded except market sentiment, and it switched rather quickly. Investors really want to move into the sector and be done with this downward movement, but right now it just does not appear that the time is right. Alpha Natural is the stock to watch right now, and one would be wise to watch and make sure the shares do not take out the new lows ($7.17/share) which were put in place yesterday. Volume was quite strong yesterday as 17.3 million shares traded hands. Shares fell $0.05 (0.67%) to close at $7.43/share yesterday so there is a bit of room between current price and the lows, but not a whole lot. Our call would be to wait until after the earnings call to make your move, just our opinion though.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.