Friday – TGIF – This Market Is For The…Margin Calls

Posted on by zman

Emergency Fed Rate Cut Dreamed Of On Wall Street Headlines like that throw fundamentals to the wind. I have puts on the XLE and some refiners but frankly am not covered relative to my longs if there is a capitulation today. Commodities are again taking it on the chin this morning as fears escalate that this could turn from a stock market thing to an economy thing. I'll be raising cash as usual this time of the month.

Housekeeping Item #1. An internet publisher, Theoiltrader.com, has expressed concerns regarding possible copyright issues in a handful of posts made in comments on this site by Nicky. I did not want to comb through the over 1,100 posts that Nicky has graced us with since she found us in April to try and locate a few unattributed comments. Instead, in an abundance of caution and with Nicky's permission, we have elected to remove all of her comments prior to yesterday. Most of the traffic on the comments is TA, which is past news and no longer relevant. This is no reflection on Nicky or her excellent analysis and in no way diminishes her value to the community. Nicky you are the best. We urge everyone to be mindful of copyright issues when posting.

Housekeeping Item #2. Subscription Watch. Today is it for the discount. If you have any questions regarding your reserved spot or have difficulties using the reservation database, contact me at zmanalpha@gmail.com.

Blind Squirel Finds A Nut Watch: Natural Gas Storage

  • I said 45 - 50 Bcf Injection
  • Consensus: 53
  • Actual: 42.
  • Gas jumped $0.366 (one of the very few green things on a very red day) to close at $6.586.

nat-gas-price-graph-080907.jpg

Gas Inventories Are Now 17% Above The Five Year Average, and 4% Above Last Year’s Record Levels.

  • Storage as of August 3, 2007: 2,882 Bcf (updated August 9, 2007).
  • Max storage for this week in history: 2,763 Bcf (2006).
  • We are now 4% (119 Bcf) higher than year ago levels, up from 2% ahead last week.
  • We remain 17% (420 Bcf) above the 5 year average which includes 2006’s record levels (see third chart below).

Looking Ahead:

gas-table-080307.jpg

As you can see in the table, average injections from now through the end of the traditional injection season get us to “high” levels of storage. Even the minimum level of injections, which occurred last year and is therefore in both the 3 and 10 year scenarios gets us to a lofty 3.5 Tcf which by historic standards is more than “full”.

The record short interest on the part of the non-commercials will be supportive of prices but apparently only once covering is induced by either sharply lower injections or a storm.

Where we are now:

gas-graphs-080907.jpg

Take note of that last graph. With the current heat wave it seems very likely we will start to quickly eat away at the recently accumulated YoY surplus which should help to maintain natural gas prices at or above the $6 level.
Tropics Watch #1: NOAA forecast continues to call for a busy season. Tropical activity is expected to ramp up in the immediate future.

Tropics Watch #2: As if on cue, Caribbean satellite looks even busier.

EIA Watch: EIA projects Henry Hub will average $7.45 in 2007, up 7.5% from 2006 average levels. They ext 2008 to increase to an average of $8.02. EIA also says to expect a decline in LNG shipments for the remainder of the year as cargoes are sent to Europe and Asia.

No Vested Interest Watch. From Reuters - Venezuela says global oil "inventories are much higher than average...There is no need to increase production". Comment: Take that EIA / IEA !!!


Odds & Ends

Analyst Watch: Citigroup raises (TSO) and (VLO) to hold, (MRO) to buy; DB takes (HOC) to hold from sell;

(END) - talk about one for the IRA. They continue to perform on the exploitation side but can't get the exploration side to work for them this year.

Single Digit Midget Watch#2 (DNE) - Those of you who've read me for a while know I make a habit of following people around not just stocks. Not in a creepy, stalker way but in "hey this guy did good over here, and now he's over there, let's see what he can do over there kind of way". I first ran into some of the new members of management here when they were at another sub $5 stock, Remington Oil and Gas. After selling that enterprise in the $40s just a few short years later they're back on a new horse. That'd be a cheesy metaphor unless you knew their affinity for bronze cowboy and horse statues or had a small one on your shelf like I do. Sorry, I digress.

  • Announced production will meet or beat 55 MMcfepd for a year end exit rate (approximately double YE 06 production) and up sharply from an 31.6 Mmcfepd exit at 2Q07. due to a combination of growth from the Barnett and from the company's newly acquired assets in the Gulf Coast.
  • Barnett:
    • The 10 Barnett 100% WI wells planned for the remainder of 2006 account for roughly one-quarter of the expected production increase and they're not drilling proven undeveloped reserves here so look for some nice adds to reserve metrics at year end.
    • They bumped their position here on Tuesday from 2,900 to 8,000 gross acres. I'll be interested to learn what the cost of acquisition was here.
    • They're in the process of adding a second rig now and plan to maintain a continuous drilling program here.
    • 2007 exit rate '07 is expected to be ~10 MMcfgpd.
  • The other three quarters of the growth is expected to come from low risk step out drilling and recompletions. Not a big swing for the fence is in there nor needed to get to the growth target.
  • Don't own it yet if ever. Like to see the 2Q balance sheet first but this is one of those many interesting things that get lost in the ever growing sub-prime induced morass that is the broader market these days as the stock closed flat. Anyway, just watching for now but I like to root for the smart guys who've done it before. Expect to see some model work and a report in coming weeks.

I'd say have a great day but with the futures pointing to a drubbing, at least at the open, how about try not to get killed and have a good weekend if I don't see you comments!

100 thoughts on “Friday – TGIF – This Market Is For The…Margin Calls”

  1. I posted this very late last night and it remains relevant this morning:

    Last week I warned we were in the crash window and this week is not disappointing! We hit 1504 on spx yesterday (I said in the region of 1502 and turned down, although it was wild and another large bounce followed). Was yesterday all of wave 2? Well it is entirely possible and if so we are in a iii down and they take no prisoners.

    Spx really does need to open higher in the am or at the least hold 1445 (currently at 1442) or we are seriously at risk of a crash.

    I wanted to post briefly to urge caution out there – cash is king right now and don’t try and step in front of this.

    My gut says this will be ‘rescued’ – this time at least but I am going to watch and wait.

  2. Spot with the “rescue” comment as the Fed and other central banks are busy injecting liquidity.

    Now all together everyone say,

    Thankyou Goldman Sachs and your kind for your overzealous tolerance for risk. Thankyou for sending a perfectly good earnings season (at least for my stocks) into the abyss of meaninglessness.

  3. CNBC tells us that Fed injects 19B. What they did not tell us is 12 Billion expired today so the net add is a small typical daily add of 7 Billion. I posted the link yesterday.

  4. Thought I saw European banks injected 30B late yesterday.

    Bernanke still sitting in the ivory tower not taking this seriously enough in my opinion.

    Today is a Friday. If we get a bad, accelerating down close today then the Fed will need to work over the weekend to prevent past Friday, Monday, Tuesday patterns b/c you just know someone big is going to announce an Amaranth style fold and the commodity funds are not immune with oil’s so rapid decline.

  5. Hey Mark – saw the CERA stuff. Is that from a publicly available source? Trying to keep our collective noses clean as per Housekeeping Item #1 in today’s post.

    For those of you with day traders blood I’m looking at this volatility as a gift rather than as a curse. There will be fits and starts in the market today no doubt with periods of “we’re saved!” followed by “we’re screwed” XOM is called a buck lower this morning, this after falling $4 yesterday. Probably an opportunity for some calls there and the premiums usually aren’t nearly as bad as many of the stocks I play around in.

    WNR – called much lower and I’ll probably cover. Just taking a look at 3Q EPS estimates vs my own late last night and based on historic relationships between their gross margin / barrel throughput and the 321 Gulf crack I can get within a stones throw of current estimates or a little above using QTD crack averages. Not that they won’t go lower if cracks do and I think they will but brokers are starting to come to the defense of the group, so far mostly big guys although there was the HOC upgrade this morning. So I’ll probably take some profits on the old and new puts there and hug my cash.

  7. Z – we either get the bloodbath today or a temporary reprieve. I am looking towards the latter.

  9. Markets not looking too good Nicky, seems to be heading towards Monday’s low of 1428. Where do you see supports?

  10. Nicky…..as you have time….could you give sector expectancies within the S&P? Really enjoy your comments.

  21. Donald Trump on CNBC right now. Always a lot of BS with him. But I think he is right when he says people shouldn’t just walk away from their homes. Telling them to go renegotiate with their bank as the last thing the Bank wants is their house.
    He wants Greenspan back! Cramer is right and they have to lower rates he says. Says Bernanke has no understanding of the markets.
    And he now says we are going to have a serious recession. I saw him on months ago and he said we would not see a recession!
    Well my question is – if Greenspan was so great why are the markets in such a mess now? Years and years of low rates fuelled one bubble after another. This mess is not Bernanke’s doing but Greenspan’s imo. So sure lower rates and lets fuel a few more bubbles.

  22. SPX – couple of options on the table.

    We ran up to 1504? Was that wave 2 in which case we are in armageddon iii down. Or was it only wave 4 in which case we now see a rally back to 1500.

  24. Nicky,

    I think this mess is being fueled by cheap money period, regardless of who’s running the fed. We’ve seen some seriously cheap money, all this money has been re-invested into stock and commodity markets. The cracking up we are seeing is people possibly making a move to something a little safer, if their is such a think.

  25. Donald also wants the fed to drop a point (ridiculous) so that he get a bid on those high-rise units he has in Vegas. Nothing like talking your own book.

  26. I blame Greenspan entirely.

    So much volatility in the financials, my personal favourite MS is down 10% in two days. I’m looking to get back in although I think the broader market can go lower.

  28. Nomad,Ndog and Stephen – all quite right and great points.

    This problem has not been created overnight or even over the last year. It goes back years and years and as you say Nomad its all brought on by cheap money. Bernanke was just left to pick up the pieces and almost overnight they were blaming him as if he had created this.

    DS ‘I don’t owe any money’ – really????
    Also said he had never been bankrupt – I thought he had but maybe he just came close a couple of times.

  29. Z–as much as we all have opinions on the mkt, can we stay on target and comment on guys like HK, CHK etc

  32. Cody – it’s a down market I like it here but its obviously subject to the same ride as everyone else. I’m not adding here to longs right now. Give me a reason, other than one minute techs to add or fundamental reason to trust this market. There’s lots of day trade ops but again, I’M not doing them right now. I’m actually trying to get a better host.

  33. Nicky- DS never filed personally but his casino’s filed for bankruptcy and are close to filing again as a share of TRMP is selling for the price of a BIG MAC meal.

  34. Nasdaq made a new low on slightly lower volume. Other technical divergences indicate we may have made a low on this indice or be close to doing so.

  35. nicky — not really, I think looking ahead is a better idea than declaring who has the better rear view mirror, which is happening now

  39. Point taken Cody. However it is good to see a lot more people writing on here in the last couple of weeks. Broader subjects draw more people in who may otherwise feel they cannot contribute. I have learnt something about DT in the last few posts! May be about his past but will effect how much notice I take about what he says about current events.

  40. Wave 1 down looks close to completing in WTI. When it does look for a rally back towards 75 even 76.

  42. well….you can’t please all the people all the time. Have a good weekend Cody.

    just checking in, anybody needs any thoughts from me I stuck on tech support with my host.

  47. Guys feel free to chatter about the market. Not much news in energy land and if you guys can give an oil analyst a clue as to the broader market’s machinations please do!

  50. Weather….a growing consensus among forecasters/models is that we have a good chance for 2 tropical lows/depressions next week. One in the atlantic and one in or near Gulf of Mexico.

  51. Thanks KL! A snub to the EIA from the biggest and least hawkish member of OPEC. This is their way of propping up oil in the face of global economic concerns

  52. redjack – still don’t see convection but everybody expects things to “heat up” soon. Stay close to that shelter man!

  53. Z…I’ll be hauling the boat and heading to Texas next week. Here one of the forecasts..

    “TROF from Bahamas (where there’s another upper-LO just N of Bahamas
    supplying dry air to Bahamas, thru E Cuba & Jamaica areas to Colombia.
    TROF should move WNW to lie by Sun12 or Mon13 from S FL & W Bahamas to
    NW Caribbean…and may breed a Tropical LO somewhere in that region,
    possibly near W Cuba or YucatanChnl. If a LO forms, some Global models
    move it W toward TX/Mexico border area later next week…but I think
    it’s possibly a LO could track N into E GOMEX or NE to S FL / W Bahamas.
    I do not believe we’ll have a feature to get more-specific about until
    Sun12 or Mon13, if then.

    Finally, WAVE should emerge from Africa next 24-48 hrs…nearly all
    Global models develop this into a closed Tropical LO early next week, so
    it’s something we need to monitor. UKMet has fastest movement…near
    40W Mon13 / GFS slowest at 30W Mon13. Potential risk for E Caribbean is
    Fri17 thru Sun19…but it’s possible nothing will form, and it’s possible
    that, if something forms it’ll pass N of Caribbean. I must point out
    this has ample time to become a significant Tropical LO before
    approaching Caribbean.”

  56. Nymex natural gas rises into positive territory on hurricane
    fears, despite cooler weather in the Northeast, says Charlie Sanchez, a trader
    with Gelber & Associates. “It’s ultimately really more pure speculation than it
    is anything fundamental,” he says. NOAA’s National Hurricane Center is tracking
    a weather pattern of cloudiness and thunderstorms in the central Carribbean Sea
    north of Jamaica, but isn’t expecting tropical cyclone formation over the next
    two days.

  58. Yep, Bad time to be a Gas Option writer, which I am!

    Lot of talk this week that people are rolling out of shorts or at least preparing for upside movement.

  60. hey nomad, didn’t mean that to sound like it probably did. I’m on two calls and acting like a one armed paper hanger today, did not mean to rub salt.

  61. Oh I’m fine, I”ve got 2 points and change to play with, just that I should have taken the buy back at 0.05.

  63. had to step out for an hour but….

    nat gas if we switch to the bullish count which looks more probable now we have taken out 6750(4’s are obviously going to have to wait for now which is a shame as Z was gonna eat his hat!) then
    we are in iii of 3 up. Major resistance at 6960 and 7100. Overall move should go to at least 7450.

  65. NFX just looks really lazy here…I swiped some SEPT 50s at $1.35 this morning looking for a day trade but have gotten nothing for follow through…HK recovering nicely and CHK kinda stuck too…

    God these morons and their subprime loans, with gas at almost $7, figured we should see some rally in these names…

  67. Deep – no options but it’s not a bad play on it. OII has had a run and a modest pullback but they definitely benefit.

    I picked off some NFX near you Brian.

    HK – nice indeed.

    SWN will run too I’d bet, ujust need one day of happyish market.

    Still pretty leery of the closing bell today.

    My site will be down from 4 est to 10 tonight. New host, oh how excited I am!!!

  69. Cody – good luck. I’m in costanza mode myself. I should just do the opposite of what I plan to and everything would be working great.

  71. Apparently there was a rumour the Fed were going to cut this afternoon which caused the rally earlier. The 3rd injection by them today has indicated the cut was just a rumour so the subsequent sell off.

  72. Told the nieghbor that I took some ice cream to the soup kitchen trying to improve my market karma. He said “you could buy beer for your neighbors.” Feels like Friday.

  73. nicky–if the Fed wants to punish the large shorts who pushed the mkt, a rate cut at 3.45 would be excellent!

  74. broader markets – volume has now changed and has increased so unless we can take out yesterdays highs the lows are not in.

  75. Cody – don’t you think after maybe an initial bounce it would be perceived as things being terrible so the market would collapse?

  76. jimbo, it’s been beer thirty for 8 days now.

    brian – they’re tired of you skinning them. lol

    cody – that would do it. might spook the market after the initial surge.

  77. Z- HA! Skinnin’ em…Yeah if they’d actually give me a spread that didn’t look like it was pulled out of a cow’s butt maybe, but I haven’t been able to do jack with these moves…Although WNR is starting to move towards that magic 58 level which appears (to this noob) to be near term resistence…

  79. Nicky as the technical guru here I hope that LOL was at the “cow’s butt” comment and not my technical analysis of WNR… 🙂

  80. Brian I was wondering if I could work ‘cow’s butt’ into the TA as it is such a great expression!

  81. Nicky, if the shoe fits like these crappy $1 spreads on WNR Puts then by all means, GO FOR IT!!

  83. Just to clear up what CNBC are saying – the money injected today – 38b – has to be given back Monday. 12b expired to today also and needed to be replaced.

  85. BBG – like I said earlier the upgrade was a little late.

    Do you cow butts taste like chicken? I go away a little while (into web host land) and we’ve gone from Fed talk to cow butts? hmmmm

    NFX trying to perk up but the DJIA looks like it just want to shoot lower into the close and nobody is making the first move. Scary

  88. Don’t know about the “cow butts” Z, just know that these WNR spreads have forced me to short rather than buy PUTS…

  93. Z thanks for the HK…my total lack of trust in this market to hold caused me to take profits and wait for a re-entry point (A LOT too early)…have a good weekend…

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