Commodities Today: After Big Up Day, Is It Time For A Breather?

by: Matthew Smith


PDCE once again failed to take out $60/share yesterday and subsequently fell below $59/share.

ORIG announced a secondary after yesterday's close.

CEO Floyd Wilson purchased 1 million shares of HK late last week.

Yesterday was a good day for commodity names, with some big moves in both speculative plays and blue chips which were just getting into the sweet spot of our buying ranges. The rally that occurred yesterday has taken many of the blue chips back outside of those ranges, so we believe it better to be patient at this time as opposed to panicking and trying to chase the market. Thus far it has paid to be patient as many names that have rallied in the past have revisited pre-rally levels not too long after having taken off.

Looking at the commodity markets early this morning, our watch list shows a sweep, with every commodity posting a red arrow. RBOB Gasoline is holding above the $2/gallon level, helped by oil's recent strength no doubt, but oil is retreating back below the all-important $60/barrel level.

Chart of the Day:

Looking at the six month chart of WTI Crude below, it is apparent just how important $60/barrel is to both the bulls and the bears. It is the agreed-upon battleground for now and those investing in the energy space should pay careful attention to WTI Crude as this plays out, especially with OPEC's meeting just around the corner.

Source: CNBC

Commodity prices are as follows (at time of submission):

  • Gold: $1,188.20/ounce, down by $6.20/ounce
  • Silver: $16.615/ounce, down by $0.184/ounce
  • Oil: $59.87/barrel, down by $1.39/barrel
  • RBOB Gas: $2.0178/gallon, down by $0.047/gallon
  • Natural Gas: $2.687/MMbtu, down by $0.011/MMbtu
  • Copper: $2.7255/pound, down by $0.0105/pound
  • Platinum: $1,112.20/ounce, down by $0.60/ounce

Drilling Rig Operators Rise

Even though drilling rig rates and utilization continue to decline, investors warmed up to the sector yesterday as the entire energy complex moved higher. Shares of Transocean (NYSE:RIG), Seadrill (NYSE:SDRL) and Ocean Rig UDW (NASDAQ:ORIG) were all higher yesterday after various analyst comments concerning the industry as a whole and the impact that could be felt across the industry if the current trend of oil companies extending contracts out for longer periods at lower rates hold. While lower rates are not ideal for investors, the fact of the matter is that analysts have lowered estimates so much that any uptick in utilization directly impacts estimates for revenue, earnings and cash flow which means that positive news flow could pick up and result in a bottom having been put in industrywide.

After yesterday's close, Ocean Rig UDW, which is majority owned by DryShips (NASDAQ:DRYS), announced a secondary offering. The company said that it intended to use the proceeds from the secondary for, "working capital and general corporate purposes, including the acquisition of drilling rigs." Ocean Rig shares ended lower in after hours trading.

PDC Energy Failed Again

With almost every single energy name we follow trading higher yesterday, PDC Energy (NASDAQ:PDCE) stuck out like a sore thumb after failing to take successfully out the $60/share level again. The shares opened strongly, charging to $60.10/share, but once again the buying weakened and the shares retreated back into the $59/share territory before finishing the session at $58.82/share. The fact that the stock was unable to find momentum in yesterday's market to take out the resistance it has run into around the $60/share area of the chart is troubling, and one has to wonder if the stock cannot move above that level in yesterday's market, then what will it take?

Halcon Resources Soars

Shares of Halcon Resources (NYSE:HK) soared higher yesterday as investors were generally bullish energy names and the market reacted to the company's CEO, Floyd Wilson, increasing his ownership in the company by nearly 25%. The shares closed at $1.31/share after rising $0.24/share, or 22.43%, during yesterday's trading session. Mr. Wilson filed a Form 4 with the SEC showing that he purchased one million shares between $1.025/share and $1.04/share between May 28th and May 29th to bring his total holdings of Halcon shares to 5,285,000 shares owned directly and indirectly.

Disclosure: The author is long HK, PDCE.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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