Looking at the commodities arena this morning we see both gold and oil up marginally on the heels of Germany seeming to join the ECB in wanting to save the Eurozone here and now. If action is swift and actually real and not just talk then the commodity space might really take off. We could see oil 10% higher and gold, depending on the means the Europeans decide to use, could rise 10-20% from these levels. It would be interesting to see, and sounds great in theory, but actually getting Europe to do this is a long shot, although one can only hope.
Oil & Natural Gas
Thanks to the rally yesterday we now must say that both Chesapeake Energy (CHK) and SandRidge Energy (SD) are both outside of our buying ranges, which we find quite disappointing this morning. Oil was up yesterday and obviously investors were feeling the need to jump on the risk-on trade, so naturally these were two of the better performers. Chesapeake rose $0.87 (5.03%) to close at $18.15/share on volume of 24.2 million, which is a number we have to say is respectable. Remember, the company's average volume is skewed due to the volatility and news flow recently which saw 50 million shares as the norm - and that is not going to be the norm going forward.
Looking to SandRidge, shares here too were strong, rising $0.31 (4.90%) to close at $6.64/share on the heels of the European news and the growing possibility that the Fed may have to do another round of quantitative easing. Although outside of our area of buying interest, we would be buyers around the $6/share level and probably would not want to pay more than $6.15/share until we have a better handle on exactly how serious the Europeans are in regards to fixing what ails the world economy.
Cliffs Natural Resources (CLF) saw its shares fall $2.58 (6.27%) to close at $38.57/share on volume of 15.6 million shares after their earnings release. Investors were disappointed by the results as rising costs at its mines in Canada are really eating into margins as prices for their production fall at the same time. It was a bad earnings report to put it simply and the fact that the stock hit a new 52-week low only reaffirms that opinion. Coal is a cancer right now, for anyone and everyone with exposure to it and it will continue that way for at least another quarter or two.
Gold will become more of a focus for investors should another quantitative easing program be introduced in the future and/or if Europe begins to finally print money in order to solve their problems. This thinking is probably what enabled Barrick Gold (ABX) to rally from the lows the stock set early in the morning on the heels of its earnings report. Earnings were down, but worse for investors is the fact that the company's Pascua Lam project in Chile is facing rising costs and now it is expected to cost over 50% more than budgeted. Thus the company is slowing development, but this will delay the opening of what was supposed to be one of the largest and lowest cost producing mines in the world once it was completed and opened. The stock hit a new 52-week low as 26.8 million shares were traded with shares falling $1.07 (3.17%) to close at $32.73/share in yesterday's trading.
This one is not really a commodity stock, but we see links between its business and the consumption of commodities so it may be a good idea for investors to pay it some attention moving forward. The company being discussed is Terex (TEX) which saw shares rise $4.12 (29.20%) to close at $18.23/share while trading 16.8 million shares. The rise was so dramatic due to an upbeat guidance provided by the company for the next quarter. Their outlook and current report should be an indication that commodity demand could be moving up shortly and watching this one and those manufacturers of mining equipment could give one an inside peek into how the economy is doing. Terex is big in the construction industry and is a leading manufacturer of cranes.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.