Not To Be Trusted Dead Cat Bounce Tuesday

Yesterday was the worst day for the energy groups I can recall.  I was also the point drop leader for the Dow, S&P 500 and I think the third worst day for the Nasdaq. A quick summary goes something like, assurances Sunday night that the two sides of the House of Representatives had come together and a bill would be passed on Monday, lower open across the board with energy underperforming the broad market, followed by three hours plus of grandstanding by lawyers who mostly do not understand or care to understand the problem, followed by a vote which despite assurance failed and you know the rest. The broad markets actually tried to close the gap to the energy groups by moving much lower into the close. The 10%+ moves in the indexes normally take weeks if not months but not yesterday.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stuff We Care About Today
  4. Refining Update Watch
  5. Odds & Ends

Holdings Watch - Wiki tab is updated

  • (DUG) - Out DUG October $40 calls for $4.30, up 79%.
  • (RIG) - Added RIG $120 Octobers calls for $2.90 with the stock down about 8% at $112.30.
  • (CLR) - Bought CLR $35 October calls for $3.70 (was bid, now mid) with the stock off 17% on the day. Unhedged, oily name on a down market, down oil, down group day.

Commodity Watch:

Crude oil got whacked for $10.52 (9%) to close at $96.37 as the bailout got derailed. This morning crude is rallying with the broad markets up about $2 but I would not get too excited about a recover yet. There is little good news on the economic or production tracking front over the next few weeks that is likely to look bullish for the commodity aside from a return of the demand from ramping Gulf Coast refineries and potentially a report on OPEC output out of one of the tanker tracker companies.

Natural gas fell $0.41 to close at $7.22 yesterday in lockstep with oil but only half as much on a percentage basis. Gas continues to search for a bottom zone and while I was thinking it will trade in a range of $7.50 to $8.50 for the next couple of months I did not count on the turbulence from Capitol Hill's yesterday. This may be setting up a long play for me on (UNG) with a call spread to boot. Gas is trading up slightly early this morning, again, moving with oil.

MMS Watch: 2 weeks after Ike struck, percent of production still shuttered in the Gulf:

  • Oil: 48.0%
  • Gas: 47.4%

Stuff We Care About Today:

SLB Analyst Day.

  • The stock fell 14.3% yesterday, slightly worse than the OIH's abysmal 11.7% drop.
  • Conference starts at 9:45 EST
  • Not always the most bullish of management teams, this time around I would look for them to try and bolster the view point that the offshore market is still quite healthy and that the U.S. onshore market is not falling apart. However, I would not look for them to provide much in the way of 2009 guidance which may disappoint some attendees.
  • Valuation: if you can trust the 2009 estimates then they are

Question From Tom Regarding What Works In This Environment - I've been thinking about that all weekend and here are some random thoughts.

  1. Lower valuation is somewhat better but not a guarantee of safety
  2. Lines of credit may get get squashed soon so look out little E&P names that outspend cash flow...I suspect this why HK is taking it in the shorts so much of late.
  3. EOG is very underleveraged by the way, even with the shelf filing.
  4. "Safety" looks like cash to me because its hard to tell just how far crude is going fall and that will govern natural gas to some extent and activity in the space.
  5. So E&P and oil service, while cheap on current numbers aren't exactly "safe" right now.
  6. In the medium term I think bigger will  be better in the E&P space although we should see some consolidation as some names 
  7. Coal and solar are getting slaughtered and will provide good opportunities once things settle down.

Refining Watch: Note the table showing 3Q08 margins in many regions topping those of 3Q07.  This is the first quarter since 3Q07 that will have outperformed the year ago quarter on a year over year basis. The stocks are still near their lows and I hold (TSO) and may add a little (FTO) and or (SUN) but only once things settle down.

 For Occam who asked for thoughts on this story.

Occam - I read that Piece by Chris Cook. I've read pieces by him before on establishing new exchanges for oil to avoid market manipulation and price dollars in barrels instead of barrels in dollars. Smart guy. Seems to play on the financial and trading angles of the game and not fundamental supply demand although he does point out that he understands those too.

I have no problem with his comment that WTI is less and less importance. I wonder however at why you would not choose a bigger benchmark than Brent. Why not Hardesty Heavy out of Canada or the OPEC blend? Anyway, WTI serves as a benchmark for light crude and the futures contracts traded around its price are no small matter but are smaller than ICE. Chris worked for ICE under its prior name so maybe that's why he likes it.

His point about Fannie/Freddie type risk is a good one. After Lehman, the brokerage houses stopped trading with each other and started doing trades largely with clearing house like the CME who could guarantee the other side of the trade. When I initially saw that news I took a look at CME and saw it gaining on the prospect of extra business. I have not looked into what kind of risk this exposes them too. If they were to falter it would put a severe crimp into trading of many commodities.

However, lack of liquidity does not necessarily mean crude would tumble. It would certainly be more volatile. I think the floor price for crude remains somewhere nearby as you start running into problems with the U.S.'s #1 supplier, Canada around the $100 per barrel mark. Much lower and they don't break even and then the growth dries up (that appears to be happening) and maybe even some current pit operations get halted (V would know better than I but they won't run at a loss for long).

Odds & Ends:

Analyst Watch: (GW) cut to perform at CIBC.

ZTravelwatch: I will be at IPAA in San Francisco next Monday and at a Shale Expo in Shreveport in November.




109 Responses to “Not To Be Trusted Dead Cat Bounce Tuesday”

  1. 1
    zman Says:

    Occam – I read that Piece by Chris Cook. I’ve read pieces by him before on establishing new exchanges for oil to avoid market manipulation and price dollars in barrels instead of barrels in dollars. Smart guy. Seems to play on the financial and trading angles of the game and not fundamental supply demand although he does point out that he understands those too.

    I have no problem with his comment that WTI is less and less importance. I wonder however at why you would not choose a bigger benchmark than Brent. Why not Hardesty Heavy out of Canada or the OPEC blend? Anyway, WTI serves as a benchmark for light crude and the futures contracts traded around its price are no small matter but are smaller than ICE. Chris worked for ICE under its prior name so maybe that’s why he likes it.

    His point about Fannie/Freddie type risk is a good one. After Lehman, the brokerage houses stopped trading with each other and started doing trades largely with clearing house like the CME who could guarantee the other side of the trade. When I initially saw that news I took a look at CME and saw it gaining on the prospect of extra business. I have not looked into what kind of risk this exposes them too. If they were to falter it would put a severe crimp into trading of many commodities.

    However, lack of liquidity does not necessarily mean crude would tumble. It would certainly be more volatile. I think the floor price for crude remains somewhere nearby as you start running into problems with the U.S.’s #1 supplier, Canada around the $100 per barrel mark. Much lower and they don’t break even and then the growth dries up (that appears to be happening) and maybe even some current pit operations get halted (V would know better than I but they won’t run at a loss for long).

    I’ll put this in the main post and expand upon it later in the day.

  2. 2
    Petra – ZEBAdmin Says:

    test test test

  3. 3
    zman Says:

    See ya Petra

  4. 4
    Sambone Says:

    By Brian Baskin

    NEW YORK (Dow Jones)–Crude oil futures traded higher Tuesday as the financial
    sector paused after the previous day’s free-fall.
    Light, sweet crude for November delivery traded $2.55, or 2.7%, higher at
    $98.92 a barrel on the New York Mercantile Exchange. Brent crude on the ICE
    futures exchange traded $3.02 higher at $97 a barrel.
    Crude prices are tracking the financial markets, which appear to hold the key
    to the health of the global economy, and therefore oil demand. Financial firms
    are plagued by bad loans and an inability to borrow, and had looked for
    Congress to approve a $700 billion bailout Monday. But the bailout failed,
    prompting the Dow Jones Industrial Average to a record plunge in dollar terms
    and oil futures to settle $10.52 lower, just a few cents short of the all-time
    biggest single-day dollar drop.
    Global stock markets have seen a small positive move Tuesday morning,
    prompting oil to rise slightly, though the day’s course was far from clear.
    “(Oil) is going to see how Wall Street does today,” said Rick Mueller,
    director of oil markets at Energy Security Analysis Inc. “The concerns are
    still there about the economy, and that’s not going to go away.”
    Mueller doubts that oil can rise above $100 a barrel without a new government
    rescue plan to replace the failed bailout plan.
    The reversal to the oil market’s direction – crude traded near $110 a barrel
    last week – marks the resumption of a long downward trend that started in July.
    Concerns about weak demand have dominated trading since futures hit an intraday
    record of $147.27 a barrel on July 11. Only the impact of two hurricanes on
    Gulf Coast oil and product inventories has delayed the slide, wrote Stephen
    Schork, editor of the Schork Report, an energy newsletter.
    “We expect the downward correction, which was interrupted by Gustav and Ike,
    to resume,” Schork wrote.
    Front-month October reformulated gasoline blendstock, or RBOB, recently traded
    4.30 cents, or 1.8%, higher at $2.4400 a gallon. October heating oil traded
    7.81 cents, or 2.8%, higher at $2.8385 a gallon. Both contracts expire Tuesday.

    -By Brian Baskin, Dow Jones NewswiresDow Jones Newswires
    09-30-08 0915ET

  5. 5

    Hey Z.

    I’m waiting for VMC to touch 70 in the next wave of carnage.

    You may want to interpolate a limit order for an Oct or Nov 70 at such a reduced price and let it ride.

    I also bought some CHK calls about 3:30 yesterday that I’m feeling good about, we’ll see.

    WHEN is the next Chesapeake earnings conf?


  6. 6
    zman Says:

    Q – They have their first analyst day mid October, earnings should be after that.

  7. 7
    zman Says:

    SLB investor day conference starting.

  8. 8
    zman Says:

    You can see the SLB conference here:


  9. 9
    zman Says:

    SLB Analyst Day 9/30/08

    Seeing some limited demand curtailment in OECD countries.

    In developing world, don’t see demand growth falling to 0

    Will need a much deeper drop in demand to reduce exploration and production activity.

    Oil Macro:
    IEA Forecasts have all come up short for Non-Opec production (see slide 10)

    and slide 11

    No supply response to price. Age, time taken to get new projects to market and increasing reliance on deep water.

    Natural Gas Macro:

    Technology and process work to unlock N. American natural gas supply. Need to keep drilling high

    Internationally – growing dependence on imports, increased desire to diversify.
    1) a lot more activity in increasing domestic supply – middle east
    2) LNG suddenly come into focus with accelerated time tables

    3) other countries are watching US in non conventional and considering developing their own.

    Activity cyccle of “Stronger for Longer” theme remains

  10. 10
    rlogan1301 Says:

    Z- what is your thoughts on Oct40 for CLR?

  11. 11
    zman Says:

    I have the $35 and $45s there. Its due a bounce. The market, not the underlying will likely dictate.

  12. 12
    zman Says:

    note 2 – What makes them think Stronger For Longer continues?

    Exploration Blocks awarded from 2003 to 2007: 12,368 blocks an d accelerating. Not all will lead to drilling but this represent a lot of activity. smaller accumulations, more complex

    Availability of Offshore Rigs – we are about to see a tremendous increase in the fleet over the next 5 years.
    44 drill ships
    81 new semi subs – > 5,000 h2o depth
    see slide 17

    Non -OPEC – current levels of drilling activity are not enough to stem declines.
    see slides 19 and 20
    Libya, Nigeria, Saudi have yet to enter mature production phase.

    Drilling Intensity: Footage drilled / Production

    OPEC Example:Libya . Drilling intensity yields higher production. Nut, take an example like the N. Sea (that is very mature) and the increase in drilling does not offset declines.

  13. 13
    zman Says:

    SLB CEO speaking on the virtues of Paranoia with regard to technology leads. Basically promoting Andy Grove’s book.

    CRL and RIG doing ok.

    Someone sent me a piece on what makes the market think a new bailout plan will work? It’s a good question.

  14. 14
    tater Says:

    There is some resistance to this quick spike back up for CLR at 40.

  15. 15
    zman Says:

    Thanks T

    How do SLB and HAL look to you? Good opening comments from SLB at their analyst day. They are looking for fast growth next five years, faster than the overall service market.

  16. 16
    zman Says:

    ZTRADE: Entered HAL $35 Calls for $0.78 for a quick trade while listening to the SLB analyst day which is pointing to continued strong service market growth. SLB sees coming boom in exploration and they believe they can outgrow the market well into the next decade.

  17. 17
    antrimshale74 Says:

    If Congress doesn’t pass something this week, I think we get Nicky’s huge pull back almost immediately. I saw last night that a coalition of businesses (Microsoft, Autonation, Office Depot, etc) are working to encourage Congress to do something. Members of the British Commonwealth are doing the same. Ironically, my doofus Congressman voted ‘no’ yesterday and yet is being strongly supported by the National Association of Realtors. I’m sure they’re quite perturbed!

  18. 18
    zman Says:

    SLB CEO said he’s comfortable with current EPS Street estimates for 2008.

  19. 19
    zman Says:

    Antrim – saw a story that Paulson’s people have been telling Congress since Sunday that no passage this week means a 3 to 4,000 point Dow haircut…this week.

  20. 20
    tater Says:

    SLB is now at about a 50% retracement of yesterday’s selloff. Profit takers will probably enter very soon.

  21. 21
    antrimshale74 Says:

    Zman, I really think we have the worst politicians in the world. They’re almost making Mugabe look like an effective leader!

  22. 22
    tater Says:

    HAL touched Jan ’08 lows yesterday and has a nice bounce going. If you want a daytrade, you already missed it. If you want an investment entry, pretty sure that a price below 33 will be seen again within the month (if it goes up above 33, it looks like it will come back down again, so I am saying there seems to be no hurry to catch this).

  23. 23
    tater Says:

    Antrim, as long as we continue to elect people based on how nice their clothes look, or if they have the right haircut, or if they happened to promise people a rebate check for their vote, there sure is going to be a leadership void.

  24. 24
    zman Says:

    Thanks again T

    Good dollar and related issues piece:


  25. 25
    tater Says:

    Meant to say on HAL, not that you necessarily “missed it” but that it has had a good run this morning and there might be a better entry point for a long trade, technically. Not trying to poop on your trade, there is more than one way to read this stuff.

  26. 26
    zman Says:

    Hey Tater, no need to explain, I gotcha. Its more of a play on the SLB guys wowing the crowd with their macro environment thoughts and then analysts publishing favorable, enough is enough type pieces, and then being forced to point out that HAL is even cheaper. Call it a 2 day trade and with much thinner option spreads than the SLB.

  27. 27
    Dman Says:

    Hi Z,

    er… can you give a precis of “stronger for longer” ?

  28. 28
    tater Says:

    Just some more TA and then I am gone. Dow and S&P have retraced about 1/3 of yesterday’s declines, fully in line with Fib theory. If you believe the dead cat bounce idea, the one third is about all you can look for before sellers will enter. Good luck today

  29. 29
    cargocult Says:

    What are the best puts to add for downside protection in a market like this?

  30. 30
    Dman Says:

    Z – I just saw the presentation & I gather it refers to their perception of this cycle

  31. 31
    zman Says:

    Dman – Sorry, been on a call. Yep, that’s it in a nutshell. They gave some reasons verbally supporting it which I highlighted early in the comments today. They reaffirmed near term estimates but like I was saying in the post, shied away from 2009 estimates.

  32. 32
    zman Says:

    Cargo – I used DUG calls on the last outing which is the same thing as a shorting the energy group but it is weighted to XOM which sometimes moves counter group (as in on DOW up, energy down days). XLE or USO puts may work as well although the premiums are pretty pricey.

  33. 33
    Sambone Says:


    DJ EIA: US Revised July Oil Use -1.335M B/D Vs Yr Ago

    DJ EIA: US Revised July Oil Use -6.4% Vs Yr Ago

    DJ EIA: US Revised July Oil Use -736,000 B/D Vs Estimate

    DJ EIA:US Revised July Oil Use 19.412M B/D; Least Since May ’03

    DJ EIA: US Jan-Jul Oil Use Lowest Since ’02, At 19.727M B/D

    0:14 09/30 *DJ EIA: US 7-Mo Oil Use -993,000 B/D Vs Yr; Biggest Fall Since ’80

    10:18 09/30 *DJ EIA:US Revised July Gasoline Use 9.072M B/D, -5.9% Vs Yr Ago

    10:21 09/30 *DJ EIA: US July Distillate Use -8.8% Vs Yr Ago At 3.672M B/D

    10:22 09/30 *DJ EIA: US July Distillate Use Lowest Any Month Since May ’03

  34. 34
    zman Says:

    Thanks Sam, that matches the refining consumption year to date on weekly basis in my Wednesday table pretty close. That being the 993,000 bopd.

    The gasoline figure is worse than the weekly by a couple of percent.

    The July distillate number is very odd, hard to believe.

  35. 35
    Sambone Says:

    Oil Inventories Seen Rising

    Dow Jones Newswires

    NEW YORK — U.S. crude oil stocks are expected to rise in data due Wednesday from the Department of Energy, according to a Dow Jones Newswires survey of analysts.

    The data, released by the department’s Energy Information Administration unit and covering the week ended Sept. 26, are due at 10:35 a.m. EDT Wednesday.

    Crude oil inventories are expected to rise by 2.4 million barrels, according to the mean of seven analysts’ forecasts. Four expect an increase, two a decrease and one no change. Forecasts range from a 1.8 million-barrel draw to an 8 million-barrel build.

    Gasoline inventories are seen falling by 1.8 million barrels, according to the analysts’ average. Stocks of distillate, which includes heating oil and diesel fuel, are expected to fall by 600,000 barrels. All but one analyst expect a decrease in gasoline inventories, while two analysts forecast a build in distillate stocks. Forecasts for gasoline range from a 3.6-million-barrel draw to a 2.3-million-barrel build. Distillate forecasts ranged from a 2.6-million-barrel draw to a 2.5-million-barrel build.

    Refinery use is seen increasing by 5.5 percentage points to 72.2% of capacity, with six analysts predicting an increase.

    Oil and product inventories are likely to reflect the beginnings of a recovery from Hurricane Ike. The storm, which made landfall at Galveston, Texas on Sept. 13, shut down refineries along the Texas coast and helped send gasoline stocks to a 41-year low last week.

    “We see depleted gasoline inventories getting a respite from heavy draws this week as refinery production and imports increase,” wrote analysts with JPMorgan Chase & Co. (JPM).

    Analysts’ Estimates
    Analyst Crude Gasoline Distillates Refining
    Cameron Hanover +3 -3.05 -0.85 +5.5
    Citi Futures unch -2.5 -1.5 +5
    GA Global Markets +8 -3 +2 +2
    JPMorgan +5.8 -0.1 -2.6 n/a
    MF Global-Fitzpatrick+3 -3.6 -1.1 +6
    Ritterbusch & Assoc. -1.1 +2.3 +2.5 +4.5
    Summit Energy -1.8 -2.4 -2.3 +10

    Average Estimate +2.4 -1.8 -0.6 +5.5
    Figures in millions of barrels, except for refining use, which is reported in percentage points. Figures are rounded to two decimal places in table, one decimal place in averages and story. For analysts providing forecasts in a range, the average of the upper and lower ends of the range is used.

    —By Brian Baskin, Dow Jones Newswires

  36. 36
    Sambone Says:

    September Madness


  37. 37
    Dman Says:

    XCO in the doghouse. Any idea what it did wrong?

  38. 38
    Nicky Says:

    Good morning everyone.

    Broader market – I had said Friday that 1187 on the SPX was the absolute line in the sand and boy was it ever!!!

    I agree with Tater re retracement levels here – I am actually looking at 1153 – 55 to provide resistance.

    I am actually ‘happy’ to see the markets working freely (??) and this capitulation is needed. I don’t think the bottom is in – its difficult to say where this is going to end but volume yesterday indicates we have more downside ahead. Once yesterday’s lows go we can watch 1060 – 70 and then 1000 on the SPX. Some time ago I mentioned a target area for a h and s pattern on the Dow which comes in at 9750. I am looking at 1430 – 50 area on the Nasdaq.

    Cycles had indicated a short term top in the 29th September time range plus or minus a day and that came in. Next cycle low is due 2nd October plus or minus a day. The larger cycles are very overextended to the downside so at some stage I still believe in a huge snapback rally.

    Gold is interesting – hardly surging to the upside as one may expect.

    Energy – I was expecting lower but not that much lower!!! As its following the broader market we may well see another shot to the downside and then I think it will rally. I will work out some fib levels….

  39. 39
    zman Says:

    Dman – nope. Started off slow, failed to gain traction with the group. Volumes on group are very low. It does not fit the bill for the high debt load names that have been hurt badly. Maybe there was a negative mention by a broker but I don’t see it. Think its just chaos theory.

  40. 40
    zman Says:

    Hey Nicky, thanks. Everything looks technical at least in energy land today. Major dearth of newsworthy news. Stocks just in drift mode now waiting on Congress to come back.

  41. 41
    Nicky Says:

    Okay fib levels for the Dow are as follows:

    10672 – 38.2%
    10766 – 50%
    10861 – 61.8%

    Fib levels for the SPX:

    1148 – 38.2%
    1161 – 50%
    1173 – 61.8%

    At the moment the move up today looks corrective. If we started to move above 1179 in the SPX then it may indicate something else is going on..

  42. 42
    antrimshale74 Says:

    Nicky, I’ve been watching Robin Griffiths, a TA in Europe who appears on CNBC Europe, and he is saying that while there may be a brief pop if Congress ever does anything, the general trend is down through the end of October. Then he is looking for a rally through March that people will mistakenly assume is the end of the bear market. Then he is looking at another assault on the lows next year, particularly as the worldwide economy weakens. Any thoughts?

  43. 43
    mahout Says:


    Did I just see copper dropping to $2.88 ?
    This is an indication of a worldwide slowdown (with some economies growing like China, but most shrinking).

    I am thinking there will be a deeper and longer lasting reduction in worldwide demand for a lot of things, including Cl, than we thought or hoped.

    I now expect we might see $80. a barrel.
    And if so, on the way down it will probably continue to take the E&P’s (and other Energy stocks) with it, as it has done, even though they are so very cheap right now( based on our understanding of normal multipliers, i.e., PE’s.

    Sorry to be so negative but I think:
    1.This whole financial catastrophe was unnecessary and could have been easily avoided.
    2.The financial catastrophe is worse in its scope and effects than we think. Unfortunately, there is a momentum to it and the ripples in this country and around the world keep feeding the monster. CapEx’s and consumer spending will be forced down by the harsh reality
    of painful deleveraging.
    3.There will likely be a bailout plan enacted this week.
    4.It will be a bad plan from more than one standpoint.
    5.It will not “work” and will be a disappointment because it will not attack the problems in the right way.
    6.We are in danger of a “Multiplier Shift”, which we have seen in the past
    (in the early 1970’s), where normal P.E. ranges for the various types of stocks shrink down to much lower levels that become “normal”. This is why Jim Rogers is right when he says, Markets can fall lower than you think.
    7.This is a dead cat bouncing today and we will probably have another one when a bailout plan is passed. But confidence is gone and fear walks the land. Watch out for after that.

  44. 44
    Nicky Says:

    Z – you see T Boone on CNBC earlier? Very happy to see Paulson in charge with Buffet to assist (I bet he is!!) and still calling for $150 oil next year but acknowledging his fund is taking a lot of pain right now.

    Also they said earlier something about 15% of his clients needing to liquidate -someone correct me if I heard that wrong.

  45. 45
    antrimshale74 Says:

    I think it may have been 1/3 of his clients needing to liquidate, but whatever the number it is significant.

  46. 46
    ram Says:

    HAL OCT 35’s?

  47. 47
    zman Says:

    Mahout – I don’t necessarily disagree with much of 43. Regarding oil, we have definitely seen slowing in demand although developed countries have not yet seen big builds in inventories despite high production. What does this mean? Likely that undeveloped country, producer country, and Chinese demand is higher than people thought. Given the reduction in demand (and I don’t call it demand destruction because I don’t see it as permanent but instead just economic slack and a pinched consumer) in the world’s largest consumer contrasted with very strong production out of Russia and Saudia Arabia (the two biggest producers) you would think inventories would be soaring. I do think that you will see mature oil countries like Mexico continue to struggle and higher cost countries like Canada reign in growth. So maybe on a congressional failure you get $80 but price (and OPEC) will quickly take care of that in my opinion.

    If oil were to go to $80 it would continue to deflate the E&P and service groups. I’m treading lightly now as a bet on Congress is a fool’s errand and a bet on the bailout giving Maria Bartoromo an excuse to yell everything is fixed (one more time) is even more such.

    As with the market, people get used to seeing big swings in the stocks. These are sending some names down more than others and the only thing that stops that is a concerted effort on the part of the analytical community to point it out. Right now they are keeping quiet and the hedge funds, normally friends of the energy market, are running for their lives. So until things settle, I plan to be nimble and small with trades.

  48. 48
    Nicky Says:

    Hi Antrim – re #42.

    I had two pops – one that would take us up into late October/early November and is now very overdue but there are some cycles that are way overextended on the downside. Then I had us down into early January and up into the Spring.

    Trying to fit that into the charts I guess its possible we see another shot to the downside in this timeframe and then stage a very good rally – maybe as a result of the bailout or some other bit of good (??) news, interest rate cut maybe (?).

    It is possible to say that whatever low we put in here could be something bigger but its not my preferred Elliott wave count as it doesn’t fit with the cycles which do not call for a low until middle of 2010 at the earliest and possibly 2011 and then a massive rally into 2013 -2015.

    I still think the 12000 – 12500 area is likely to contain the upside on any rally here and I am still looking at 8000 and lower into 2010.

  49. 49
    zman Says:

    Yes Ram, apologies for dropping the month but its kind of a two or three day trade and I wanted maximum leverage on it.

    Re TBP, I don’t know the number but have heard his losses are significant, as in most of one of the funds blown up.

    So here we sit with the market up some 200 plus points. Any idea why? Gold is down. Volumes look (a)pathetic.

  50. 50
    Nicky Says:

    Just a bounce I think Z plus they keep saying the bailout will get done. Didn’t they say that right up until the last minute yesterday too??? Gold looks a bit like a triangle in which case likely to break to the upside…

  51. 51
    Alhambra Says:

    4,000 put contracts being processed on XOM 70’s. 1,000 gone so far…

  52. 52
    zman Says:

    Anything to add to this basic list?

    Doing a little work on what happens if Obama or McCain win. Not to get political at all.

    It seems the perception will be Obama wins good for subsidies for anything green so wind, solar, the clean energy ETF’s etc and likely bad for the Majors and E&P to some small extent and maybe for coal.

    McCain – Not the opposite but not bad for the majors or coal and a boost to offshore service companies.

    I’m not suggesting anything actually changes although I’d bet on more subsidies for green energy under Obama but am looking to play a perception that something gets done on energy in terms of legislation.

    I think CNG becomes more popular under either candidate.

  53. 53
    Bleemus Says:

    Obama = short coal, market has been killing coal in recent days on bet that Obama wins

    McCain = long coal

  54. 54
    zman Says:

    McCain might give a pop to GE on the nuclear construction concept but I really don’t see the US building one anytime soon.

  55. 55
    zman Says:

    Here’s another interesting thing. If you look at the electoral math Obama is in the lead. The clean energy stocks do not reflect that. Take a look at PBW, one of the most popular of the clean ETFs.

  56. 56
    Dman Says:

    You’d get a fair bit of solar & wind infrastructure for $700B. TBP ought to scale up his earlier modest proposal …

  57. 57
    Nicky Says:

    Crude just hit the 50% retracement level at 101.40. Next fib level is 103.30 which is 61.8%.

    So far we have a 3 wave rally to the upside – a move below 97 would say it was done.

  58. 58
    mahout Says:

    Z #47,

    Thanks for your thoughts. Your points are certainly valid and welcome. It seems very wise to be nimble and small with trades right now. For me it seems wise to continue to convert some, not all, of my stocks to cash and wait for better days.

    As to Cl going to $80., I am a whole lot less confident of it going to $80. (because of possible cuts by OPEC and cuts in CapEx by producers and other reductions in production)than I am of the seriousness of: the global deleveraging of economies and our bungling government.

    You mentioned hedge funds “running for their lives”. I think ordinary non-Wall Street citizens are very scared and also beginning to run for their lives, so to speak. This, I would think, will cut consumer spending and bring the economy down to lower levels and thereby reduce demand. The question is, how much and for how long.

  59. 59
    zman Says:

    ZTRADE: Out the RIG $140 Oct calls for a dime, down 95%. Still holding the $120s but in the market, I have little faith that those higher strike $140s would be able to wake up before expiration.

  60. 60
    BossmanG Says:

    Z, hows your faith in the CHK’s?

  61. 61
    zman Says:

    Was on a call, what prompted the last 100 pts in the Dow? Obama speech?

  62. 62
    BirdsofpreyRcool Says:

    talking about changes to marked-to-mrkt FASB rules

  63. 63
    zman Says:

    Boss – ok. I like them outperforming on the up day vs the group however yesterday was incredibly bad and I don’t recall a % drop in them like that. I think yesterday was a false capitulation in the group. So maybe we get another smaller hike in the market but Thursday and Friday could be brutal if the RNC keeps running anti-bailout adds and their is no change in the stalemate. Market obviously believes we get something done. However, if they change the $’s involved I think the plan becomes less effectual…if they don’t the votes will be tough again. Failure would mean the first 4 digit decline in the Dow. And then CHK…..well…that would be uglier.

  64. 64
    cargocult Says:

    What are your thoughts on PQ? Will the earnings trend continue?

  65. 65
    Dman Says:

    I wonder if Ben is holding rate cuts in reserve in case nothing is passed.

    Either that or he’s still wearing his anti-inflation super-hero costume. Grown men in tights – not everyone can really make that work.

  66. 66
    zman Says:

    Thanks Bird – have taken to playing fetch with the office dog which is more productive than scanning the headlines today.

    Re PQ – I was a little disappointed in their 2Q numbers AND in the lack of newsworthy news on the call. 3Q should be interesting from a news standpoint but don’t look for any upside to production volumes as per their recent pre-announcement. The cost numbers will likely be a little high on a per unit basis and I won’t be holding into the call but will be looking to play any catalytic news they might disclose. They seem to skip a quarter with regard to news and they definitely did last quarter. Still dirt cheap, still like as a long term hold in the common but I think E&P recovers in the big caps and bigger growth names first.

  67. 67
    zman Says:

    Dman – I heard a guy say exactly your first statement on CNBC Europe this morning. They said he basically knew that doing it first would be symbolic and useless. How about a coordinated cut with Europe which looks set to cut?

  68. 68
    zman Says:

    Re Mark to Market – aren’t they just talking about changing the accounting rules for investments that are designed to be carried through to maturity? Would this mean that they would mark a pool of mortgages back to face value? Seems a little arbitrary.

  69. 69
    zman Says:

    HAL getting a boost from SLB and from the market. SLB Q&A starts in 1 hour.

  70. 70
    BirdsofpreyRcool Says:

    re m-2-m…. don’t know exactly. but, one of the HF games is to push on CDS indexes that are used to mark illiquid securities. so, it’s possible to create the perception that a security is terribly distressed, when common sense says otherwise. but, try telling that to your auditor.

    really, it’s just a way to try to bring some common sense back where irrational pricing currently reigns.

  71. 71
    zman Says:

    Bird – if Paulson gets the $700B would it not be better to wait to change the accounting until he starts buying, then you have the stability brought about by liquidity and a higher prices for ones he does not buy. So in effect, he would not need to buy as much. Am I thinking about that wrong?

  72. 72
    Dman Says:

    Z – I can live with CNBC plagiarizing my first statement before I even thought of it. But if you’d said they also stole my second comment, then I’d have no choice but to start wearing a tinfoil hat.

  73. 73
    zman Says:

    I’d love it if they ditch mark to market for hedges and just let them roll through the income statement as they occur or are reversed instead of the arbitrary repricing mechanism each quarter.

  74. 74
    zman Says:

    Dman – make sure you get the namebrand stuff, the private label variety is too thin 😉

  75. 75
    zman Says:

    Long lines for gas, no gas, everyone topping ever time they pass a gas station that actually has gas in the northeast being reported on msnbc now. AAA saying the shortages will continue at least until mid October and consumer behavior is making it last longer.

  76. 76
    BirdsofpreyRcool Says:

    z – a market price for a security is a market price. but, when that particular security doesn’t trade, at all, “other” m-2-m methods can be used. hence, the ability to wreke havoc on a slew of illiquid securities just by manipulating an index that is used to price the individual securities.

    also, you got the Paulson plan down perfectly. You don’t have to buy the WHOLE LOT just to get the pricing back to some rational clearing price. Just trading one bond in the open mrkt prices the entire issue. So, it’s not like we (the U.S.) have to buy every single distressed piece of paper. Besides, Bill Gross is just waiting to pounce. Once a mrkt clearing price can be established, there will be a lot of private $$ buying.

  77. 77
    BirdsofpreyRcool Says:

    got an unsolicited investment newsletter, so i am going to cut-and-paste (without worries about copyrights)… but, i think it does a much better job of explaining the Paulson Plan. Here goes:

    For one thing, the Paulson plan wasn’t really a “bailout.” There is a major difference between a $700 billion program to provide liquidity by buying up distressed assets and $700 billion allocated to new government spending. This is not money that would have gone to line the pockets of “Wall Street’s fat cats.” Instead, funds would have purchased distressed assets, bought equity in financial institutions or made loans that earn interest. Importantly, assets would have been bought up at unusually cheap prices. That’s why they’re “distressed.” This is standard strategy for distressed security hedge funds. In fact, as Andy Kessler pointed out in the Wall Street Journal last week, the government could have wound up buying more than $2 trillion in notional value loans and home equity and CDOs for $700 billion. But unlike any hedge fund, the Treasury and the Federal Reserve could stack the odds in their favor by pumping capital into the U.S. economy to get it moving again.

    In many ways, buying up distressed securities is a classic “carry trade”: the U.S. government would be borrowing at 3% to buy assets yielding 10% or even 12%. Bloomberg estimates that the spread on $700 billion would have generated income of $40 billion to $60 billion annually. Throw in the capital appreciation on the assets as the market stabilizes, and this plan not only could have stabilized the market, but also made money for the federal government. Instead, U.S. investors on both Wall Street and Main Street already are $1.2 trillion in the hole in stock market losses and financial contagion is threatening banking systems around the world. And that’s after only one day’s worth of trading.

  78. 78
    Dman Says:

    Just noticed that TSO didn’t make a new low yesterday…

  79. 79
    zman Says:

    tempted to lose those CLR calls up 70% since yesterday purchase. normally would not be but this market…

  80. 80
    zman Says:

    Tater – would a close over $40 be good enough for you? If so, a retreat below $40 is bad I take it? Normally I’d like to see a close over the round number and above the prior day’s high which was 40.04.

  81. 81
    rlogan1301 Says:

    CLR is looking awesome…i just need to follow your advice Z…do you expect the market to tread water tomorrow…i know its hard to say.

  82. 82
    BirdsofpreyRcool Says:

    sell or not sell….

    1) this rally doesn’t have a lot of volume behind it (which could change quickly when Congress weighs in, of course)

    2) it’s end of quarter; they always cram into the close.

    3) think about selling during the last 10 minutes.

    just a few thoughts.

  83. 83
    tater Says:

    I was actually just looking at that. Mouthed off and wanted to see if 40 was holding. I still see the middle Bollinger Band (which is the same thing as the 20 MA) slanting down from above into this price advance. Up 12% in one day. Gap resistance looming just above from Monday’s open.
    Will you kick yourself if you sell? Try half.
    I moved in pretty hard late yesterday, and I’m back to all cash and actually looking to short some things now.

  84. 84
    zman Says:

    Gotta wonder what gives re oil vs dollar today. odd.

    Bird – thanks. Tater, yep your last…its that kind of market.

  85. 85
    antrimshale74 Says:

    OII weak in the group. Any reasons?

  86. 86
    zman Says:

    Tried to punt a little in between on the CLR and it fell off…probably not going to get any off unless I tap that low bid.

  87. 87
    zman Says:

    ZTRADE: Out partial CLR $35 calls for $6.00, up 62% since entry yesterday. Hate to be so quick on the trade but this market is not to be trusted with those kind of quick profits.

  88. 88
    zman Says:

    HAL exactly pacing gains in SLB now.

  89. 89
    Nicky Says:

    Hmmmm…would be a little more convincing if the volume was not so light. That said we are almost back to where we started yesterday! Dow now at the 61.8% retracement level.

  90. 90
    zman Says:

    Lots of charts with gaps almost filled today. No congress action this will evaporate quickly.

  91. 91
    zman Says:

    Re OII – nothing that I saw, been weak all day. Obviously these sellers here did not listen to the opening of the SLB call when they talked about the still strong demand offshore and the sharp growth in rig building that is still going on. All of those deepwater drill ships and semi subs will need an ROV or two on them…that’s OII’s play.

  92. 92
    zman Says:

    RE OII 2, looking at the volume which is pretty big but only half of yesterday’s massive number I would attribute it to end of quarter selling on the part of somebody who really wanted it off the books today.

  93. 93
    mahout Says:

    BOP #77,

    The AIG action was masterful and will work out very well for us poor tax payers IMO. I don’t see the “Bailout” or whatever we eventually call it as having that happy an outcome, unless it is substantially changed from Paulson’s plan which I and the public see as a poorly tailered socialist disaster. Absolutely key to the solution is a suspension of M2M accounting until we can deal with the blizzard of harmful instruments that never should have been allowed to exist without stringent rules and supervision and provision for transparency.

    I sincerely hope the “Plan” that probably will be passed this week will work. But I’m not counting on it. There is a pernicious momentum underway which will be very difficult to stop now. It has been allowed to go too far.

    In #77 “notional value” was mentioned. My handy-dandy dictionary has this definition of “notional”: 1.Existing in the mind only: IMAGINARY, UNREAL 2.Given to foolish or fanciful moods or ideas: WHIMSICAL. This is how the toxic assets are currently priced. Comforting, isn’t it? The only thing that makes sense to me is to use present value of cash flows to attempt to value these assets.

  94. 94
    zman Says:

    Sheeesh – what a day! Going for a run, back later. Thanks for the input today guys.

  95. 95
    Nicky Says:

    Z – re #84 and the $ and oil. You have to wonder whether the spiel (which imo was well overplayed as the correlation really wasn’t there) when crude was rallying about it being due to a weak dollar was just spin as the two really are detatched right now.

  96. 96
    tater Says:

    Stop making sense mahout. The emperor has new clothes on. Get with the program!
    (I can’t seem to get the vision of Nancy Pelosi running around Congress yesterday with the music from the South Park movie playing in the background “What would Brian Boitano Do?” But obviously sung with Nancy’s name replacing).

  97. 97
    BirdsofpreyRcool Says:

    mahout and tater – the ONLY part I agree with is the Treasury’s ability to buy distressed securities at a reverse auction price. All the other stuff is truly “socialism.”

    The solution at it’s core is like when the Calif insurance commissioner in 1991 unilaterally declared that no insurance company could hold junk bonds. The market knew that insurance companies would be selling their holdings and bids for bonds dried up. Executive Life Insurance had to mark down the value of it’s junk bond portfolio to a ridiculous level. It’s assets no longer offset it’s liabilites and the Calif Insurance Commissioner (Gray Davis, by the way) declared it insolvant. Credit Lyonnais and Leon Black (ex Drexel, Bernham) bought the junk bond portfolio for about 50% of what it was worth… BECAUSE NO ONE ELSE WOULD. Black and CL almost immediately made a huge return on their “vulture investment.” And the market for junk bonds began to get back to more normal pricing (and junk bond funds made huge returns between 1991 and 1993).

    This is a lot like the situation today. Paulson wants to use the US Balance Sheet (us taxpayers) to put reasonable price discovery on distressed assets. This will free up banks (in theory) to start lending again.

    That is what Paulson’s plan is about. Google it and see. This is almost the same thing… just much larger scale.

  98. 98
    BirdsofpreyRcool Says:

    [I intended it to mean “google Executive Life + Leon Black + Credit Lyonnais”… not google the Paulson Plan.]

  99. 99
    BirdsofpreyRcool Says:

    z – looks like WLT just took another step toward becoming a pure-play coal company. got rid of that pesky finacing business. one down, homebuilding division to go next. also, increasing share buyback program.

  100. 100
    mahout Says:

    BOP #97,

    I hear what you are saying, my friend. It is very logical and interesting. To put a “reasonable price” discovery on distressed assets is a noble objective.

    However, what if that “reasonable price” merely confirms that the bank in question is hopelessly insolvent and destined very quickly for bankruptcy and closing of its doors to the public? What that bank really needed was equity capital, not a purchase of some of it’s assets. I favor the Treasury of the United States buying a new issue of dividend paying preferred stock of that bank under a legal mandate that that preferred stock must be sold or otherwise disposed of in 5 years. This would save the bank and get the United States out of the commercial banking business in due course. Other reforms must take place also. But this method, if done right, would save the banks, make credit available again from the banking system, and give the taxpayer the strong possibility of not losing a dime!

  101. 101
    mahout Says:

    Tater #96,

    I love it, Tater.

    Maybe I’m just having an awful time gettin with the program. Maybe that’s it.

  102. 102
    BirdsofpreyRcool Says:

    mahout — rats! i appreciate your comments and wanted to continue… i just spent about 15 mins typing out a totally brilliant (ha!) extension to our discussion. but, when i hit “submit,” it logged me out. that really sucks!

    but, here’s the bottom line: I want the Paulson Plan to buy assets, not banks. That means buying difficult to value securities from bank balance sheets, not investing equity in troubled banks. If the banks are insolvant after properly valuing their assets, then the FDIC should put that bank into receivership.

    But if the assets are bought correctly, then the bank gets to properly value it’s balance sheet and lending can resume.

    I used to do distressed lending and then bankruptcy workouts. The last thing you ever wanted to do was to put more equity into a company with poor management. But, if i could buy an asset from that company at a good price, the company got cash to continue and I got a good deal on an asset. We both lived to fight another day. That is what Paulson is trying to do. Keep the good banks going and let the FDIC take over the bad banks.

  103. 103
    mahout Says:

    BOP #102,

    Very good point and I hope it works out well. It sure looks like we’re going to have it.

  104. 104
    zman Says:

    BOP re 102. My sincere apologies for the occasional and seemingly random system logout. It’s even more fun when you are writing a post and it happens. I used to do a lot of re-writing before I became a fan of Save Now, Save Often.

    I agree with 102 re assets and not banks are better for buying. Somebody make a cartoon out of the process and send it to Congress.

  105. 105
    nifkin Says:

    Petrohawk Reduces 2009 Capital Budget By 33% to $1.0 Billion, Focused on Haynesville and Fayetteville Development

    Production Guidance for Third Quarter and Full Year 2008 Reaffirmed; Full Year
    2009 Production Target Set at 25%-35% Year Over Year Growth

    Petrohawk Completes Revolving Credit Facility Increase to $1.1 Billion, Currently Undrawn

    PR Newswire

    HOUSTON, Oct. 1

    HOUSTON, Oct. 1 /PRNewswire-FirstCall/ — Petrohawk Energy Corporation
    (“Petrohawk” or the “Company”) (NYSE: HK) today announced that it will
    reduce its 2009 capital budget by a third and reallocate spending to more
    heavily weight projects with the highest internal rates of return and
    highest potential for reserve growth, namely, development in the
    Haynesville and Fayetteville Shales.

    The shift allows the Company to further affirm its strong capitalization.
    The 2009 capital budget, which includes drilling, completions, seismic and
    facilities, is currently $1.0 billion, revised from a previously announced
    budget of $1.5 billion. The Company has no current plans or need to access
    the equity capital markets.

    The reallocation of capital reflects an increased emphasis on development
    of non-proved locations in Petrohawk’s successful Haynesville and
    Fayetteville Shale projects, with the benefit of higher expected overall
    reserve growth potential for the Company. Petrohawk’s production guidance
    for 2009 represents 25% to 35% drillbit growth over 2008 estimated annual
    production of 305 million cubic feet of natural gas equivalent per day

    In conjunction with 2009 capital planning, Petrohawk completed the
    redetermination of its credit facility, which was increased to $1.1
    billion from $800 million, on September, 10, 2008. The facility is
    currently undrawn.

    Additionally, the Company is evaluating the divestiture of certain
    conventional assets in its Permian Basin region during 2009. These
    properties include interests in Waddell Ranch, Sawyer, Jalmat and TXL
    fields of West Texas and Southeastern New Mexico. The Permian Basin
    properties currently produce approximately 35 Mmcfe/d.

    Third Quarter and Full Year 2008 Production Guidance Reaffirmed

    For the third quarter, Petrohawk reaffirms its previously stated
    production guidance range of 310 to 320 Mmcfe/d. The Company also
    reiterates previously stated guidance for the full year 2008 of 295 to 315
    Mmcfe/d, a more than 25% organic increase over pro forma 2007 production.

    Petrohawk to Present at Merrill Lynch Global Energy Mid and Small Cap

  106. 106
    zman Says:

    HK conference call starting now at Merrill Lynch

  107. 107
    1520sbroad Says:

    z- be interested to hear the blow by blow of the hk cc if you get a chance.

  108. 108
    zman Says:

    It was quick, one big well in the slides, can still grow fast with the lower budget. Another PR coming soon, details will be in the post in about 15 minutes.

  109. 109
    1520sbroad Says:


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