Commodities were mixed yesterday, with no general direction for commodity stocks themselves. Some were up, some were down and other than the oil and gas and coal sectors we saw little across the board movement in one direction in sectors we watch. Obviously the market is awaiting news from the world's central bankers, so we are forced to wait until later in the week to see which way markets shall move, but we think there is a better than 50% chance that we get a bump higher as there are a few outs for investors even if Europe does not fully deliver, but it will be necessary for them to deliver on a majority of what investors now expect.
Oil & Natural Gas
SandRidge (SD) continued its winning streak yesterday as shares finished at $0.24 (3.53%) to close at $7.04/share on relatively strong volume of 9.4 million shares. The shares are melting up and are now up over 15% in only a few days, so we find ourselves quite disappointed that the shares began this rally right before they hit our buy area which we discussed last week. There is a lot going right with this company right now and it is a good story for investors. The company remains on our buy list and we shall revisit it on any pullbacks. The stock remains on our buy watch list.
Also on our buy list is Chesapeake Energy (CHK) which saw shares rise $0.24 (1.30%) to close at $18.70/share yesterday on very weak volume of 11.7 million shares. There were 36 permits issued by the state of Ohio for shale drilling, with 22 of those going to Chesapeake. In Ohio the top three counties for drilling right now (with the Utica being the target here) is Carroll County, Columbiana County and Harrison County. It will be interesting to hear what the company has to say about results during their conference call. We suspect that there will be some good commentary on the exploration side of the business and shall be quite interested to hear of how the NGL and oil windows are coming along.
The industry continues its winning streak as shares bounce off lows across the board. We were impressed with the price action yesterday as shares were all over the place across the industry before finishing higher across the board.
Arch Coal (ACI) was once again the leader and maybe even the catalyst as it saw its shares finish higher by $0.42 (6.18%) to close at $7.22/share on volume of 30.8 million shares. The trading was choppy until the shares began an ascent around 1 PM and the rest of the industry followed the same path higher. The stock finished strongly and just off of its highs for the day and it is obvious that there is some momentum here as the shorts have been forced to cover - which has been the cause of the big rally over the past two trading sessions.
Although the shares did not finish up as much, Alpha Natural Resources (ANR) saw its shares rally significantly on a percentage basis as shares closed at $7.15/share having risen $0.14 (1.92%) after having traded lower by roughly 10% earlier in the morning. Volume was strong here as well with 28.2 million shares traded and the strong volume was also paired with the fact that shares finished near their highs for the day.
This is all good, but coal investors who want to be in the industry and trade around all this volatility should focus upon Peabody Energy (BTU) as their shares have underperformed the past few days. Shares finished at $21.05/share yesterday after finishing higher by $0.25 (1.20%) on volume of 9.1 million shares. We view this less as a situation where Peabody needs to catch up but rather where Arch and Alpha need to come back down, and that shall happen as volatility dies down a bit and short covering comes to an end. Peabody's volume is right around the average and volatility has not really ticked up except around their earnings announcement and this looks like a bottoming out now, especially with the shares bouncing off of the $20/share level yesterday. The price action for the industry does suggest a pullback for Alpha and Arch, but Peabody should be insulated for the most part by any dramatic pullbacks by those two.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.