Oil remains under pressure, but we believe we are closer to a near-term low and bottom than many believe. It is hard to be optimistic with Europe putting so much strain on the world economy, but we believe that issues in the Middle East can at any time cause a significant rise and we really like what we are seeing from the U.S. consumer. If one believes that the U.S. economy will continue its slow march forward, then one must be bullish of oil. We remain bullish of precious metals, but at this time see them taking a breather as Europe figures out their mess. That will be a trade to come back to however once a few more questions are answered.
Oil & Natural Gas
The two stocks we like to direct our traders to, SandRidge Energy (SD) and Kodiak Oil & Gas (KOG), both find themselves in precarious positions as shares have fallen towards levels where we would like to see support kick in. SandRidge is already at that level and yesterday the $7/share level held strong and provided that support, but holding this level should only get tougher in the days ahead especially if oil continues lower.
Kodiak has some breathing room between the current price and the $9/share level which has been a level where the shares fall through pretty hard on the way down but utilizes for strong moves higher when rising through. The company is highly levered to the price of oil, so as goes oil so goes Kodiak and with that said we think shares can fall a bit further before finding support.
It appears that shares of Rosetta Resources (ROSE) are once again headed lower and this is setting up what appears to be a pretty interesting trade. We want readers to be buyers at the $45/share level and below. Trading the shares between the $40-50/share level has been profitable for those who have done it over the past few months and we believe the market may be presenting U.S. with another opportunity to take part in this trade. The company's Eagle Ford Shale play is the driver for growth and wealth creation and going forward shall continue to increase the top and bottom line growth at Rosetta Resources. Be patient and buy on the upcoming dip.
Peabody Energy (BTU) continues to get beat up with shares down $0.96 (4.18%) in yesterday's trading to close at $21.98/share. To be fair, the entire coal complex is coming under pressure but one does not expect to see the blue chips of the sector leading the way lower. Like Peabody and the other coal names, we ourselves have come under fire for not pulling the trigger on this trade. We find this laughable because although we have come very close twice now, our research and the charts simply did not justify making that move. It was close, very close even, but at the end of the day the data did not flash a buy signal and that is why we are still not involved in the coal trade. Coming under so much fire for having made the correct call at almost every turn is humorous, but we will not allow it to affect our long-term investing and thus remain on the sidelines. Hopefully this fully explains our position and reasoning.
Our trade in Freeport-McMoRan (FCX) was stopped out with the trailing stop we recommended at higher levels than here, and with shares now below the $40/share level we hope that our readers did in fact get out. Volume remains strong here with 17.9 million shares having been traded, but with the current macro environment we worry about Freeport's short-term prospects. We think we are headed towards the $37/share area before the $41/share level now and would recommend sitting out until we get there. We will revisit this once we reach that level and further discuss our outlook, but at this time we want everyone out.