The accelerating sell off late on Friday was ominous. (DIA) called down a lot less than I would have thought over the weekend. Caution is my favorite word today and this week. I had an awful lot go right in terms of earnings over the last two weeks and much of it didn't matter at the end of the day because of the market. (OII) is a perfect example and their stock reacted to earnings by jumping for one and a half days by 14% but the Friday afternoon saw the stock fall from up $4 on the day to flat by the close. By the way, I'll be window shopping a little this week but let's see the broad market level out first.
CALLS
- (NFX) limited follow through from huge earnings late last week. When the DJIA and company starts to behave this should recover quickly.
- (SWN): great quarter. See what I mean. The halo effect couldn’t outweigh the market despite the fact that natural gas did little this week and most gassy stocks, who didn’t have this good a quarter ended roughly flat
- (CHK) bought additional near month calls for the earnings call. ($35 Augusts for an average cost of $.77). CHK beat and guided higher. The stock traded higher all day in the face of a pitiful and, towards the end, sharply declining broad market. Last bid $0.95.
- (OII) Rocked estimates and traded as much as 13% higher in the two days following an earnings beat. Cashed out of half my August $60 position on Friday up 463%. Better market and this goes higher soon as the
- (VLO) Beat earnings. Decent call although the speaking style is not to my taste warranting several extra cups of joe. The sector got pummeled as September RBOB tested but did not fail $2. As the old adage goes, cheap can get cheaper. I think some key points about 2008 through put and a widening spread from sour to sweet were lost in the market spiral. My August $70s were slaughtered this week. See below for the offset.
- (EOG) - what the #%*&@@#!!! Well, they ran up into earnings nicely so maybe a little bit of profit taking was in order despite the upgraded production guidance. 11.5% organic annual growth for a company of this size is not too shabby. Mark Papa’s comments on the call regarding stepping up their 2008 hedging program may have been misconstrued (as he lamented on the call) as worry over long term natural gas prices. Combine that with those landlocked researchers in Colorado who basically said, “Oops, we overestimated hurricane numbers again” and natural gas and stocks like (EOG) took it on the chin. Strangely, the mainstream media received the downgraded hurricane guidance with much less fanfare than they did the forecast for a busy season. I guess it’s easier to show pictures of Anderson Cooper dangling horizontally from a stop sign like a flag in gale than it is to show two people sipping mojitos on a tranquil beach.
PUTS:
- (BJS) closed the August $27.50s bought on 7/24 for $0.78 for 2.30 (197%) on 8/1 and given the market I sold earlier. I guess I’ll have to live with that.
- TSO Bought August $42.50s (seemingly crazy with the stock at $47) as things were melting down late in the week for $0.55. Last bid $0.85.
- (WNR). This is part of my expensive refiners will suffer play. Still holding the August $55s up 96% since 7/20.
- (FTO). Ditto but entered earlier (7/12) just before I wrote this. My August 50s are bid $14.80, up 410% and I’m still holding.
Earnings We Care About This Week:
>
XOI looks to have support at 1,285 to 1,290, or a stone's throw from here. This corresponds to the DJIA which also looks to have support at present levels but could easily fall to 12,600 or even 12,000. I'm not predicting anything with that statement, just looking impassively at a chart. For a better read on the market's technical machinations click here to go to Nicky's View. Last week the gassy stocks fared much better than the XOI which is laden with Majors and Independent Refiners.
Heat Wave Watch. Two weeks of sweltering temperatures expected for a majority of the lower 48. Putting that in perspective for you folks that like numbers: last week's cooling degree days (CDD) tally rang in at 87, the high for the year and warmer than normal but still much cooler than the comparable week a year ago. This week the CDD estimate jumps to 96 which is 25% warmer than normal AND well above last years levels. This kind of heat, if it lasts could act as a floor under gas prices at around the $5.65 to $6 level.
Tropics Watch: Four tropical waves with one dumping on Cancun as I type this. Little development is expected in the next 48 hours.
Reader Request:
(TXCO): TXCO Resources, formerly The Exploration Company, has interests in:
Bottom Line: I don't have one yet. Obviously given the market you can afford to wait a little while on most things. They've done well with the drill bit posting decent reserve replacement to date but the story here is of course, an oil sands play in Texas and a new shale gas play. At this point both are still a science projects. Just oil sands potential is massive when you consider their 2 to 3 billion potential barrels of sludge priced at recent Canadian oil sands deals just under $1 US). That alone would be quite a premium over the company's current $300ish mm market cap. But given cash flow and reserves it's valuation metrics appear stretched, perhaps by all the potential upside that exists in those sands. Either way, this is one I'll watch the headlines on and wait. If the tar and heavy oil projects the move from 0.3 B to 3.3 B won't happen overnight.
Odds & Ends
Analyst Watch: JPM takes (MMR) to outperform, (ME) upped to buy at Calyon, (GDP) from underperform to buy at Jefco, (SM) price target cut from $38 to $32 at FBR.
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Oil down $1, gasoline broke $2 early and is now just barely over it.
fwiw, Beacon upgraded the wrong Endeavor in my opinion.
here’s a look at the tropics today:
http://www.accuweather.com/news-seasonal-headlines.asp?partner=accuweather&traveler=0
Quick summary of today’s post
Oil and gasoline looking weaker today.
Gasoline broke $2 in early trading but recovered to just over since. That’s bad for the refiners but good for your commute.
Earnings start rolling again on Tuesday so there’s no help (hurt),
the tropics look benign, but
heat, lots of heat is on the way and that should support natural gas at around current levels.
Very cautious on calls for bottom fishing purposes as I have faith in the broader market’s ability to override any brilliance the companies can display.
To fill in one of your Earnings chart ?? SGY usually reports earnings the evening before their conf. call
where is everyone?
Thanks yunker.
Nicky, try it now.
Cody – Had the system set to only allow people who are registered and logged in to comment + it’s early.
Does someone know someething about TSO? Stock is nose diving into earnings.
nicky– around 7.30am, MER came out and cut their gdp forecast, their earnings equity mkt forecast and their house price forecast. perhaps the lower low scenario has more juice now.
mdinh–perhaps because sep gas cracks just dropped?
nicky–its not getting much play yet, but the KKR folks are forcing banks to honor deals knowing the banks are stuck with real losses
Nicky – now you’re just bumming me out. lol.
Orderly sell off in energy again. Refiners taking a beating for the most part. E&P and service off a little. Not even tempted to buy the dips now.
TheDeal.com reports Kohlberg Kravis Roberts’ pending $29 bln acquisition of payment processor First Data has become a symbol of fear in the incestuous worlds of private equity and leveraged finance. Not only is it one of the largest leveraged buyout deals on record, it’s also one of the most aggressively structured, both as an acquisition and as a financing transaction. Many feel it’s destined to cause great pain on Wall Street when it tries to sell its debt in Sept. Most observers believe that the First Data debt financing won’t make it through the mkt in its current form. Given an existing pipeline of loans and bonds that totals close to $300 bln amid waning demand from CLO funds, First Data’s financing would likely have been tough to pull off even in a good mkt. Making it a virtually impossible sell, however, are the covenant-lite and PIK toggle features, which have become anathema to a mkt that has grown acutely risk conscious, prompted by the subprime blowup in the mortgage mkt. So far, KKR has refused to relent on the terms of its debt, mercilessly forcing its investment banks to honor commitments to provide funding, regardless of the losses they’d have to absorb.
from briefing-
Oppenheimer downgraded oil and gas stocks to Neutral from Buy. Firm says although their long-term view on the stocks remains positive, their near-term view has turned negative. They now believe that, despite the decline in the stock prices in the last three weeks, the downside risk exceeds their upside potential. Firm rates these stocks as Neutral: APA, APC, BP, COG, CRK, CVX, DVN, EOG, FTO, HES, MRO, MUR, NBL, OXY, PXD, SUN, TSO, VLO, XOM, XTO
Cody – whoever said better late than never was wrong.
TRADE: sold my silly last minute TSO puts between $1.35 and $1.50 this morning for 170% gain. Still hold the FTO and WNR puts.
Goldman’s $105 call “super-spiked” by sub prime et al…who woulda thunk it.lol.
I don’t really understand, is it such a good idea to tell the world where your stops are, or are the markets much too liquid to be manipulated in that way?
I got stopped on FCX today. The whole group is getting spanked including BHP, PCU and FCX (Copper). Looks like last August all over again in the Energy patch. I’m hedged with SKF, GLD, FXE, SDS, and SJH. Most down markets don’t happen in a week or so. Z- I’m bullish on Energy long term.
RBOB $1.98 – I’ll be posting some new crack spread charts tonight – not pretty.
with all the lawsuits about to be sprung, its too bad there are no public big name law firms stocks..
Sambone – I concur. Raising cash in what were some outlandishly out of the money puts, watching my longs for DD or forward roll opportunities but I have NO INCLINATION at this point to catch any falling knives.
I get this funny feeling that with late friday selling, early monday selling, that its somehow forced liquidations for margin calls etc…..my hope is that GS, who emplys the smartest people in the world will come out and say what their anticipated losses/liability is…its odd they havent
Nicky – want to give us your read on XOI, XNG OIH? Looks to me like XOI has fallen into support and OIH is just above.
TRADE: bought some $65 XLE puts as a little added insurance to my refining options (around $2).
CLR – bottom line beat after you back out the charge.
And no one cares. More later.
Nicky – I think we’ll bottom and then rally in the market. Looking for 13,700. Then next week, it will turn to the dark side and take out the lows.
yipes — good night ETP
N – We’re close. Watch the action this afternoon. I’m looking for a rally, BUT with emotions running so high, who knows.
That OpCo sector downgrade really adding injury to injury. EOG – great quarter off about 5% since
CRK – should be another nice quarter tonight, off going into the number. I’ll take a long position there before the close but I want to watch it trade for a little more time today.
RBOB solidly below $2. Ever broker who last month said, “refiners?! oh man you gotta be there” is now saying, “refiners??! you gotta dump those pigs”.
Cramer freak out:
nat gassy stock bounce here. May take a quick trade in NFX or SWN, very close to the money and August and a quick out to reduce my basis in my September calls. I only do this b.c I’m a strong believer in the names and given the market, likely to only be a day trade.
TRADE: CHK $35 CALLS for $0.85. Should have included them in the paragraph above along with APC and EOG and right now the spread’s a nickel which beats the others by 2/3rds
Nicky: XOI at 1282. did you mean 1230?
Any thoughts OIH – oil service index.
Z – As I said last week about Cramer “I’m melting, I’m melting”! LOL, what a showman
No Human could ever know that much about stocks, and I’m willing to bet that his Hedge Fund buddies are crying when they call. Here’s why I don’t like the guy.
http://www.stocktagger.com/2007/07/jim-cramer-microsoft-corporation-msft.html
Sambone – he’s Dan Dorfman on steroids (note the rage). That internet interview he gave awhile back where the interviewer started getting uncomfortable b/c Jim was giving up the hedge fund worlds’ underbelly was pretty telling. It’s a must watch too and I think one of the rare instances in which he tells the truth.
As to knowing that many stocks, no way. I know that many tickers since I got my start pouring over the weekly green and blue O’neil books looking for chart patterns but it doesn’t mean I know beans about their current ops.
Nicky – thanks re OSX. OIH is the amex version of an oil service index.
Thanks for the Cramer bit. Was somebody squeezing his privates?
Z – do you have a link to the interview you mentioned in #50?
Jimbo – Too much caffeine
That was a fun Cramer moment
Can’t seem to find the first video. Maybe the SEC took it down and is holding it as evidence. lol.
SWN getting pan fried. NFX languishing, CHK holdings it’s own but well highs. XLE looks poised for a nose dive.
Does anything matter before the Fed statement tomorrow. I REALLY don’t see them cutting but if they did wouldn’t it be a sign of how bad things really are?
Could the Fed really cut tomorrow?? That (to me) would seem like it would tank the dollar…That couldn’t be good…
Brian – I don’t see it. They probably just add a sentence or two saying they have taken notice of certain disturbances in the bond and equity markets.
Z, If they cut rates the dollar would probably tank.
Sane
it may be more telling if the Fed keeps injecting cash to the system on FOMC days as much as anything…..
The fed is going to come out tommrow with their vague talk and mamby pamby stance saying the same thing they have been saying since the last rate increase, “we are watching the markets and see thing moderating in the future”
Sane
My comment in #60 was namby pamby as I think they’ll get.
there is a very real and human context of the mtg mktthe fed is acutely aware of given the upcoming elections……….
what happenned in NG? screaming higher
big round thing off Africa, another down near Panama.
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hearing FNM may get permission to expand lending ops to stabilize mtg mkt
if true, financials could have a wicked rally, if not, just more summertime BS
Nicky – here’s your buddy! LOL
Phil Flynn
August 6, 2007
Is global warming starting to spread or is it possible that it’s just the heat getting to us? First it was the polar ice caps and now it’s the stock market that’s melting. Is oil being influenced by the heat that is being felt in the stock market by what could be called this sub-prime slip?
The sell-off in oil started Friday as traders started to assess the potential impact from a weaker than expected jobs number. With the sub-prime worries already out there, a weakening jobs market might mean that the average consumer will be less likely to handle the problems arising from the sinking home market. Those fears were reinforced when Bear Stearns and their collapsed mortgage hedge funds led to fears that other big firms might also run into problems.
The bottom line is that the market fears that a slowdown in the economy could slow the demand for oil. Of course hedge funds that are diversified may have to rob Peter to pay Paul. If funds get that sinking feeling on stocks, they may liquidate there oil market positions.
I wonder if Santa even saw it coming. It was bad enough that Santa had to fight off the Martians and the Burger Meister, Meister Burger. But now Santa may have to deal with an even more sneaky and dastardly foe. If you thought the Martians were tough now that Jolly Old Elf is being pitted against the awesome power of the “Evil Empire”.
On top of the world in the cold North pole, the Evil Empire has slipped in and in the cover of water, laid claim to Santa’s native homeland. That’s right, Russia, the former Soviet Union, has laid claim to Santa’s native land. After declaring that the North Pole is the property of Mother Russia and is now – I guess – an occupier of the lands of the North Pole, Reuters News Service reported that Russian divers in a Russian miniature submarine – probably not unlike a miniature version made in Santa’s shop! – with a mechanical arm dropped a specially made rust-proof titanium flag into the artic seabed at a depth of 4,261 meters or 13,980 feet. Which is about how high Santa and his reindeer fly! Now if Russia takes over what will become of Santa and his castle? What about the toys?! And I am worried that if things heat up what will Russia do with the elves? Will we have elf refugees fleeing the pole! Where will they go? Will the US give them political asylum? Why did Russia sneak into Santa’s land and claim ownership! Why pick on Santa who has always espoused the virtues of peace on earth and goodwill towards man? Do they want Santa’s secrets about how reindeer fly or how he delivers toys around the world in one night! No. It’s because they want to control more of the world’s oil and natural gas.
Russia has found that controlling oil and gas has given them power. Power they can use to impose their will on some oil and gas dependent nations. Russia has no regard for the sanctity of the North Pole!
Canada, along with Santa, Mrs. Claus and the elves, is pretty ticked off! According to the AFP, Canada says that this flag planting is just a show. That this is a “15th century” stunt and their claims to the artic is very well established. The US says that laying a flag on the seabed has no bearing on the claims to the riches at the pole.
But I think it is very disturbing that Russia is making this move! It shows a future where the competition for supplies of oil and gas could lead to tension between countries down the road. And if you have a country that will take over Santa’s homeland they will stop at nothing to gain an edge in the global race to secure energy supply.
Happy Monday! Don’t start another week without being on the Phil Flynn Energy Blast. Just call Phil Flynn 800-935-6487 or email me at pflynn@alaron.com to open your account.
We’re long September crude from apprx 7550 – stop 7490.
We’re long September RBOB from apprx 20100 – stop 19900.
Buy September heating oil at 20100 -stop 19900.
We’re long September natural gas from apprx 605 – stop 595.
Have a GREAT day!
Sambone – and I thought I was funny…
Nicky – see it, thanks.
z–you should declare yourself the Emperor of the North Pole and declare war on the Russian invader a la The Mouse that Roared
Call it “Zland”.
oh lord…
Energy re melting with oil falling off a cliff. Where are the $105 guys now?!
z–from briefing-
Market chatter that large hedge fund group is being shut down.. rumor appears to be weighing on market
Now the chatter is that the rumored company to be in trouble is large wholesale funder.. this explains why the mortgage stocks just got crushed
Mortgage stocks have gone into freefall over past 30 min.. would note this rumor surfaced right as positive NFI news hit
Sounds like a planted story intended to put a cap on the mortgage names b/c a short-squeeze was starting following the NFI news. Would be looking for long opptys in the space.
Canadian interlisted energy stocks getting pounded (Can market closed).CNQ down 5%
Oil down $3.60!!!
Who was it that said oil needs to take out the highs and then it falls to the lower 70s, up 60s?
KWK down 5%, SWN down 3+%, these guys are 90+% natural gas which is up today. Go figure.
S&P says mkt overreacting to its Bear Stearns’ outlook
cdoy – maybe, maybe not. I don’t know how S&P could know that at this juncture.
While we’re all bored with the sliding market right now can I ask if anyone perused the pages of the Alway An Option edition 3? See last Thursday’s post for a copy if you missed it.
This should put a bottom under the gassy stocks: trying to do scoop some $35 BBG puts.
Bored? I love the action.
Dr T. Your obviously more on the right side of the trade than me. lol. Although CHK showing renewed signs of vigor, OII recouping a buck (still have a half pos there) and my refiner puts still playing nicely.
Maybe they’re starting to separate the cute babies from the ugly ones and the bath water but I still don’t have a lot of faith in the market prior to FMOC Tuesday.
Nymex Crude Slumps Nearly 5% As Funds Bail Out
By Matt Chambers
Of DOW JONES NEWSWIRES
NEW YORK — Crude oil futures slumped nearly 5% to a one-month low Monday, closing near $72 a barrel as hedge funds and other big speculators with record bets on price gains bailed out after oil failed to push to new highs last week.
The front-month September light, sweet crude contract on the New York Mercantile Exchange ended the floor session down $3.45, or 4.6%, at $72.03 a barrel. Settlement at that price would be the lowest for a front-month contract since July 5. Prices continued to fall in late electronic trading and were recently trading at $71.73 a barrel. Brent crude on the ICE futures exchange fell $3.61 to $71.14 a barrel. Final settlement prices weren’t yet available.
Hedge funds and other large speculators boosted their net bets on a gain in Nymex futures, or net long position, to record levels as of July 31, according to the latest U.S. government data. An extended net long position is seen as a signal by some market watchers that a big drop in prices is possible if funds bail out at the same time, and this latest position came the day before prices hit an intraday record $78.77 a barrel.
“The danger is that when one fund manager recognizes it’s time to pull out he’s the first of many to do the same — it creates a stampede,” said Tim Evans, an analyst at Citigroup in New York. “I don’t think this is going to be just something that happens for a couple of days and then crude returns to its upward path, it could take weeks.”
Large speculators boosted their net long position, to a record 127,491 contracts in the week to July 31 according to data released late Friday by the U.S. Commodity Futures Trading Commission. Some analysts, including Evans, had warned the extent of long holdings could lead to a rapid sell-off if the price-positive mood that has driven crude prices for the past few months lets up.
“People holding long positions have started getting very nervous,” said Peter Beutel, president of trading advisory firm Cameron Hanover in New Canaan, Conn. “What we’re seeing right now is heavy large liquidation by people with those long holdings.”
There has been no major shift in supply and demand factors for which to attribute the almost $7-a-barrel, or 9%, slide in crude from its record high last week, but a lack of news to support the recent steep run-up in prices has led many traders to exit their long positions and stopped new buyers coming in.
“This market is in a short-term downtrend mode, it’s following through” on selling late last week, said Tony Rosado, of IAG Energy Brokers in Fort Lauderdale, Fla. Prices had run up more than 20% in two months when they hit $78.77 a barrel Wednesday.
The run-up had been on a mix of factors including refineries struggling to ramp up for summer gasoline demand, supply problems in Nigeria and the U.K. North Sea and forecasts for a coming supply crunch.
Gasoline prices fell to a more than four-month low Monday, further pressuring crude prices. The difference between gasoline futures and crude oil futures has fallen to less than $10 a barrel, from more than $30 earlier in the year. This could reduce the incentive of refiners to make products and may reduce demand for crude oil.
Front-month September reformulated gasoline blendstock, or RBOB, fell 10 cents, or 4.9%, to $1.9290 a gallon. Settlement at this level would be the lowest for a front-month contract since since March 16. September heating oil fell 9.35 cents, or 4.6%, to $1.9405 a gallon.
Expectations of further gains in refined product stockpiles in key U.S. inventory data due Wednesday from the Department of Energy also weighed on prices.
Gasoline stockpiles are seen building by 1 million barrels in the week ended Aug. 3, according to the average in a Dow Jones Newswires survey of analysts. Distillate stockpiles, which include gasoline and diesel fuel, are forecast to build by 1.8 million barrels, while crude stockpiles are seen falling by 2 million barrels. Refinery utilization is expected to build by 0.1 percentage point.
(Roshanak Taghavi contributed to this article.)
—By Matt Chambers, Dow Jones Newswires
August CALL CHK trade from earlier up about 25% from earlier, as I’ve got the Jan 08s as well I may continue to trade opportunistcally here.
re: “The danger is that when one fund manager recognizes it’s time to pull out he’s the first of many to do the same — it creates a stampede,”
It works that way too for the giant (and I mean giant) short position in natural gas.
Crude down 5% and XLE rallying into close??
The “Blood” is not all on the floor yet in regards to the market or energy. The crowd is nervous. See today’s #37
Right, because I shorted a little XLE this morning. The move out of crude could see a bounce in the morning and people are taking late day bets for it.
I’d be long the CRK but for the market. Won’t add another name that should beat but whose news could easily get lost in the market maelstrom.
NFX, SWN, CHK, HK, OII HAL all noticing gas closed higher.
Refiners going flat inspite of the RBOB / HO declines.
I bought massive puts on XEG(canadian energy etf) last tues but they just cover my long losses. But the increasing deltas on them helped me buy in to today’s massacre
best overview I have seen of the subprime mess-
from briefing
Consider that housing is about 5% of the economy. According to the American Enterprise Institute subprime loans rose to a record 20% of all mortgages the last two years, but the amount of subprime loans as an overall percentage of mortgages is clearly less than that. According to the NYX’s at present about 19% of all subprime loans are at least 30 days past due. So we’ve defined a universe that might be 3% of all mortgages being in some form of distress. 3% of a sector that’s just 5% of the entire economy. If that doesn’t give you perspective, let’s go a step further and consider the consequences of default. I doubt it would even be half. But even if they all default the mortgage holders will have some recovery on their losses because at the end of the day they would own the assets underlying the mortgages, i.e., the residences. So you can sit there and believe the world is ending because the mortgage sector will realize losses of maybe 1+% after the massive money they have made the last 5 years,…
Nice DrT! My shorts not quite offsetting my longs since last Thursday although I had several longs go the right direction which helped.
wow..look at xom go…….
Timely cover on TSO TRADE this morning. Blind squirrel finding a nut.
VLO ramping nicely, still long and need to roll to next month.
CHK and it’s gassy peers moving up nicely into the close.
If rally in broad works, SWN is a steal here.
if the fed is dove-ish in their comments, this could be a monster rally…damn, did folks get stopped out friday and today
EPS 0.41 cents for CRK.