Bernanke speaks today and that will surely move commodities one way or the other. Commodities have held in relatively well lately, even when economic news is not the best and that indicates strength. We will not pretend to know what Bernanke will say, only that he will be politically correct and try to play the role of Goldilocks - saying that the economy is not too cold, but also not too hot. We do think that he will be more dovish than in recent weeks, but we have been surprised before when he was not. With all of the uncertainty, if you must buy then buy companies with good production growth and prospects moving forward.
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Oil & Natural Gas
SandRidge Energy (SD) rose $0.18 (2.81%) to close at $6.59/share on volume of 10.6 million. The shares continue to move higher, while for the most part maintaining volume which we believe shows the strength here. Volume elsewhere has fallen and fallen hard, and that has led to stalled share prices and in some cases increased volatility. We have stated numerous times that this is one of our favorite plays and think that the news coming out of the Permian and Mississippian plays will show the value still present in shares at this time. Currently this is a $10 stock masquerading as a $6 stock, which is providing one of the better opportunities, outside of those plays with exposure to the Utica, for investors.
Speaking of the Utica, we would like to discuss Rex Energy (REXX) today. Yesterday the shares finished up $0.66 (5.50%) to close at $12.66/share on volume of 1.4 million. Our call at just under the $10/share level is up over 25% in a few weeks and we think we might be approaching a short-term top here, so it is time to be cautious by either selling a half position or using trailing stops to protect oneself on any downward price action. For those readers who use options, those too could be used to hedge your position here as well.
The big news in the coal sector yesterday was that BMO Capital Markets cut their ratings on both Alpha Natural Resources (ANR) and Arch Coal (ACI). Shares fell across the board, especially those with exposure to Appalachia. We remain on the sidelines of this trade as the charts are not telling us to go long at this time. Eventually they will, and at that time we will make our move in an industry-wide trade. The trend is your friend, and for those who have listened to it here it has saved you precious capital and allowed you not to worry about losses as they have mounted.
Alpha Natural finished down $0.78 (10.22%) on the downgrade to finish at $6.85/share on volume of 27.4 million shares. Shares hit another 52-week low on the news before rallying a bit to finish above those levels but the serious damage was already done. It would be reasonable to expect a bit of a relief rally this morning after the large sell-off yesterday, but with earnings just around the corner and not a lot of good news in the industry we would not be buying into the rally should it occur today.
Arch Coal shares fell $0.24 (3.91%) to close at $5.90/share after they were downgraded, a move which was muted when compared to the damage done at Alpha. Shares approached the 52-week low but never hit it as they rallied once hitting $5.58/share. With the rally that took place after the low was put in, shares essentially finished at exactly where they opened that morning.
CONSOL Energy (CNX) had a rough day yesterday, even though we saw most of our natural gas and shale plays higher yesterday. The action can most certainly be attributed to the news from BMO and their opinion on coal production based in Appalachia. Shares finished down $1.20 (3.79%) to close at $30.46/share on volume of 5 million. The shares finished very near the lows for the day, and now that shares broke through the $31/share level it sure looks like it will provide problems moving forward - it might very well provide some resistance moving forward as it has been a level of importance recently. Earnings are up soon here, and the coal exposure is what ails the company right now, but the Utica will eventually light a fire here and we would imagine that the company tries to discuss that during the conference call when that happens.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.