Wrap – Week Ended 1/30/09

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Goodbye January, your head fakes won't be missed. Nor will your worst performance in the history of Januaries for the S&P 500 (down 8.6%). Energy fared somewhat better but the market lacks anything close to what I'd call conviction at this time.

Holdings Watch: Fewer trades of late as again, this is a head fakey, spineless, political speech watching market.

  • RIG Sold half the RIG Feb $50 calls for $7.90, up 139%
  • HK - Sold the Feb $17.50 calls for $3, up 60%, repositioned higher strike shortly thereafter.

Wrap Notes:

1) Energy Outperformed The Broad Markets For The Week. Oil service led the energy group as big cap service names continued to report "not so bad" 4Q results. The outlook there (and I mean the general outlook of management's on conference calls is what I'd term "extremely guarded", the layoffs have begun except at HAL where they are tacking more of a wait and see approach. The Majors reported better than expected but were weighed on by the S&P. With commodity prices apparently stabilizing and refining (see next bullet) on the short term upswing I expect a little boost to their results near term and for XOM a return to safety name status in energy which we saw in December and early January.

  • Sidebar: ABC News Gets The Spin Job of the Week Award. I caught the nightly news Friday and after telling story after story of economic woe, anchor Charles Gibson so but hold on, not everyone is hurting. In fact he mused, some companies are doing quit well saying, "take a look at Big Oil". He noted Exxon reported a record year, showing their 4Q revenue numbers on the screen broken all the way down to the per day tally ($125 million, oh my, the outrage of it all!). No mention that profits fell 35% sequentially and 20% year over year, a function of lower prices which are a function of, well, that economic woe that Charlie spent the first 10 minutes of the broadcast bemoaning. Chuck also failed to mention that profit margins at XOM are only about 10% vs 28% for a company like Microsoft. No mention either of the 80 thousand plus people who work at XOM and still have jobs.

2) Refining Margins Continue To Recover. There's no denying refining margins have improved as refinery utilization has fallen to record lows (for this time of the year). Planned and unplanned maintenance outages and decisions by a handful of refineries to curtail throughput in the face of weak demand and margins has resulted in stronger spreads. Given bloated gasoline inventories and continued weak demand and the potential for a pretty strong rebound in oil prices prior to an actual recovery in end user demand its tough to see how the rally in cracks holds, especially in the near term in a planned workers strike in the U.S. is avoided. 

3) Rig Count Continues To Drop. Gas rigs down another 35 rigs and horizontals fell the 10 rigs they gained last week. Gas rigs probably have another 300 to 400 to fall and so far the reaction from gas prices has been nil. See Friday's post for a look at the last gas supply data (not much there for bulls either). Until the horizontal rig count starts to look like the gas rig count I doubt natural gas will catch much of a bid. More on that Monday.

4) Oil Speculators: Should I Stay Or Should I Go (Long) Now. Wow, the weekly volatility in these numbers has really gotten out of hand. Oil has been able to shrug off big inventory reports in the last 3 weeks and traders have not been selling with much as much of a sense of urgency these last few weeks. Short positions build up into the runs on $50 and are quickly covered on the profit taking pullbacks .... hmmmm.

5) Gas In Storage. See the Friday post for a full breakdown of the numbers.



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