Monday Morning And All Is Suddenly Cautious

65 thoughts on “Monday Morning And All Is Suddenly Cautious”

1. By Reza Amanat
   Of DOW JONES NEWSWIRES

   LONDON (Dow Jones)–Crude oil futures traded higher in Europe Monday, buoyed
   by improving sentiment towards the U.S. economy and the return of risk appetite
   to the commodities markets, participants said.
   However, analysts remained mindful expectations of a sustainable bull run may
   be thwarted by weak fundamentals, which continue to plague the oil market in
   the short term.
   “Crude prices recently have been driven mainly by surging equity markets with
   increasing risk appetite on a growing belief that the U.S. economy has
   bottomed,” analysts at KBC Market Services said.
   However, with market fundamentals showing little sign of improving, the
   prospects of a sustained rally will be limited, analysts said.
   At 1128 GMT, the front-month May Brent contract on London’s ICE futures
   exchange was 47 cents higher at $53.94 a barrel.
   The front-month May contract on the New York Mercantile Exchange was trading
   up 49 cents at $53.00 a barrel.
   The ICE’s gasoil contract for April delivery was higher $15.00 at $458.50 a
   metric ton, while Nymex gasoline for May delivery was up 148 points at 150.72
   cents a gallon.
   The tug-of-war between weak oil demand and a faltering economy in the near
   term, and improving sentiment towards the health of the economy in the second
   half of the year, have set the tone for recent oil market price movements.
   “The recent rallies have been fueled by growing optimism over future
   stabilization in the financial system and in global economic growth,” Goldman
   Sachs analysts lead by Jeffrey Currie said. “However, the reality of still-weak
   current fundamentals continues to suggest that such forward-looking rallies
   will likely prove short-lived.”
   Builds in U.S. crude and products inventories last week suggest oil
   fundamentals remain “fragile,” the Goldman analysts warned, also noting this
   inventory surplus is likely to dwindle to a deficit by the second half 2009
   amid forecasts of a stabilization in demand and restocking on oil products by
   industry.
   However, despite enhanced confidence in the health of the global economy in
   the coming months, aided by U.S. government policies, some analysts remained
   sober about the extent of the predicted recovery.
   “As we move out of Winter, the economy is still not out of the woods,” said
   Harry Tchilinguirian, senior oil analyst at BNP Paribas. With the U.S. earnings
   season to look forward to and the labor markets continuing to show rising
   unemployment, crude prices may yet move lower, he noted.
   Meanwhile, Saudi Arabia’s State oil giant, Saudi Aramco late Sunday marked
   down all its official selling prices versus April to Asia, the U.S. and Europe,
   with the exception of Arabian Super Light being delivered to its Asian
   customers.
   The Saudi price cut will once again bring the Organization of Petroleum
   Exporting Countries’ ability to comply with their 4.2 million barrels a day
   announced cuts back into question, some analysts suggested.
   “Saudi Arabia cutting its OSP for May needs to be taken as a warning flag for
   potential lower compliance,” said Olivier Jakob, managing director of Swiss
   consultancy Petromatrix.

   -By Reza Amanat, Dow Jones Newswires Dow Jones Newswires
   04-06-09 0740ET

2. As Head Trader nailed the market action on Friday, I thought I would post his comments early. Nothing monumental or particularly “out-on-a-limb” about today’s observation, but here is is —

   Think we will be biased to the downside today. Preannouncement and earnings season begins tomorrow. Caution ahead of that.

   I’ll post any updates, if/when I get them.

   Futures a bit ugly right now.

3. Dodging Bullets Watch: RBC starts CRK at Sector Perform this morning, stock looking to be off 10% at open. Provides a good opportunity for me to get back long prior to a ops update that has not yet happened.

4. The credit indices actually tried to rally, first thing this morning. But, the rally didn’t last and quickly turned red. Would really hate to see the new IG12 index widen to 200bps or more, just as a reference point.

   IG opened around 184, about 4 bps tighter than Friday’s close… but, is now quoted at 191

   HY opened around 74.25, up about a half a point, then dropped back with the weakness in the market… now quoted 73.625

   Money seems to be coming into the corporate bond market, however, as yields of close to zero percent in treasuries just don’t cut it for investors. Also, hearing some state pension plans are asking about participating in the PPIP… they think the returns could be quite attractive. Pension Plans have a LOT of ground to make up, over the next few years. Will be useful to watch their moves.

5. By the way, it’s snowing in the Midwest this morning. Pretty stuff… going to get very cold tonight and tomorrow, tho.

6. BDI -20 1486

   TED 94.79

7. Thanks BOP – keep that color coming!

   Near record lows expected in the South tonight, probably not much help to gas prices unless we can stay away from mild temps for a couple more weeks. I’d say the degree day forecast in today’s post is likely to get revised higher when finalized like almost all of them this year so we may see a long flat trough in storage at these levels (say, another two reports).

8. IG 191.5… very quiet trading conditions, tho. So, no one is panicking.

9. BOP – our cold runs to New England this weekend.

10. SM- Subpar Hy well. The reality is that it is extremely difficult for a company to carry-out these complex and capital intensive drilling and completion procedures, and do them at AFE and have a good outcome. The risk in these shale plays is to have a predictable volume outcome at or below the estimated cost. One well with a bad outcome does not condemn the play, just as one IP monster does not make the play so wonderful.
    That being said, the number of enterprises that are geared up to consistently give fine results can be counted on one hand. Poor results by the likes of Devon show the play and the skills required are not yet brushed across the operator spectrum.

11. Slow start for HAL call buying this morning. All rumor and no story make for a dull day for the pony tailed one.

12. Still scratching my head over KOG’s big move off the lows. Can’t quite accept that it’s just b/c the Bakken boys were the In Group last week. Can’t get any colour from the company… but, if someone has some scout-friends in North Dakota, would sure like to hear what’s going on.

    Possible KOG catalysts: completion rig moved onto the first pad; oil shows from wells being drilled from 2nd pad (partners are XTO on the first and Peak on the second well drilled from that 2nd pad); results from Peak Energy’s own well, testing the TFS in the middle of KOG’s acreage; M&A rumors; a negotiated settlement on the 2nd Unit rig contract.

    Until we get some colour from any of these catalysts, I think the stock is fairly valued right here.

13. Reef – exactly my thinking. Acreage does not necessarily guarantee volumes. Far from it. And if prices don’t recover later this year, many of these players spending high $ on these sub par wells are going to be looking at their balance sheets and booked reserves in dismay by year end.

14. z — woo hoooooo!!! Good sale on those CRKs on Friday. Dry powder still the most valuable commodity in this market.

15. Re KOG – that kind of move probably has some reality in it (too far beaten down) and some of the recent “everything’s better now so buy at any price mania” it it. See END last week. Or PQ two weeks back.

16. IG index holding in here, at wides, but not heading any wider.

    IG 191

17. BOP – this week would be a good time for them to come out with that report. I saw a broker comment last week saying the company had not provided details but that it was very encouraged by a number of completions.

18. Z When do you think NG will lift off this level? Or are you expecting us to go lower before lift off?

19. Eld – I think we trade $3.50 to $4.50 through May with a year end target over $6.50.

20. gold and gold stks very weak this am-dollar up a tad.

21. Oil continues to take all cues from the equity markets with NG taking its cues from oil.

    CRK did not fall enough for me to take a shot at it just yet.

22. By Gregory Meyer
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Crude oil futures fell as New York floor trading opened
    Monday, nudged by negative sentiment in stock markets and a stronger dollar.
    Light, sweet crude for May delivery was recently down $1.74, or 3.3%, at
    $50.77 a barrel on the New York Mercantile Exchange. Brent crude on the ICE
    Futures exchange fell $1.42 to $52.05 a barrel.
    Overnight gains evaporated as U.S. stocks lost ground. Equities have recently
    given crude traders powerful signals on the direction of the world economy,
    with rallies suggesting a potential turnaround for declining world oil demand.
    The Dow Jones Industrial Average opened about 60 points lower.
    “It seems we are at the mercy of the stock markets. When they were up, we were
    up. When they started falling, we started falling,” says Tom Bentz, a broker
    and analyst at BNP Paribas Commodity Derivatives in New York.
    The dollar also gained against the euro and a range of other currencies,
    weakening commodities’ attractiveness as a currency hedge.
    Oil has posted hefty daily gains and losses, but has been stuck in a range of
    $45 and $55 a barrel in the past two weeks. Analysts at Goldman Sachs, an
    oil-trading powerhouse, said they see relative high oil inventories raising
    risks for lower prices in the near future.
    “The recent rallies have been fueled by growing optimism over future
    stabilization in the financial system and in global economic growth,” the
    Goldman analysts, led by Jeffrey Currie, said in a note. “However, the reality
    of still-weak current fundamentals continues to suggest that such
    forward-looking rallies will likely prove short-lived for the time being, as
    was the case in recent days.” Goldman forecasts $65-a-barrel crude by year end.
    In China, crude oil reserves held by oil companies fell to 263 million barrels
    by the end of February, down from a record high of 273 million barrels in
    January, news agency Xinhua said.
    Xinhua said the relatively high level of crude stocks and the fact that state
    oil giants China National Petroleum Corp. and China Petrochemical Corp., or
    Sinopec Group, are still facing de-stocking pressure on their gasoline and
    diesel reserves “may suggest China’s net oil imports would not rise quickly in
    the following months.”
    In the U.S., oil company ConocoPhillips said a fire at its
    238,000-barrel-a-day Bayway refinery in Linden, N.J. has reduced operation
    rates. The small fire broke out at about 2:20 a.m. EDT Sunday, spokesman Bill
    Stephens said.
    Front-month May reformulated gasoline blendstock, or RBOB, fell 2.37 cents, or
    1.6% to $1.4687 a gallon. May heating oil fell 3.77 cents, or 2.6%, to $1.4083
    a gallon.

    -By Gregory Meyer, Dow Jones Newswires (Simon Hall in Beijing contributed to this report)

    Dow Jones Newswires
    04-06-09 0950ET

23. z – #17… which report? TDing at the 2nd pad? Moving a completion rig onto the first pad? Frankly, I’d just like to hear a “boo” from them on any of the above topics.

    Here’s the bottom line with KOG — they are TOO SMALL to be a stand-alone. When oil prices were high and they were trying to prove up their Bakken acreage, they had a reason to be a company. But, they missed the window on both oil and operations… that said, they didn’t load up on debt (like KRU), so they did something right. I think they should prove up their acreage and sell. I also think that is what they are doing. That would explain a lot of the “dead air” and non-information coming out of KOG mngmt right now.

    Valuation exercise, what is the most and least you think they could sell the company for? All the acreage on the FBIR is leased now… so the only way for a new player to get in there is to buy KOG’s position. KOG was the first company to lease on the FBIR, so maybe they got a shot at some of the best stuff. Would also love to know the result of Peak’s TFS well. All these little bits of info would add value to KOG’s acreage position.

    My guess, this company is sold before next July.

24. Z – some news for ya on the volatility charting front in the thinkorswim platform.

    I’m slowly familiarizing with the platform & I just started to look at a separate charting tool (within the platform) called Prophet.

    The main charting system has got zillions of technical studies. But not enough for technical types (apparently) because Prophet is specifically intended for technical charting.

    Don’t ask me about those capabilities, but what I did notice was it has a little control panel for options charting. So in addition to charting the option itself with various chart styles (OHLC, candle, area etc) you can also overlay the bid-ask, compare to the underlying stock and chart the implied volatility.

    If you select all those options and use a daily timescale, what you get is a main chart with the option along with the bid-ask & the stock.

    Below that is volume with open interest overlayed.

    And below that is implied volatility for that contract (if you change contracts, the volatility chart changes).

    I checked out some numbers using the CBOE calculator and it looks like they use the midpoint of the closing bid-ask spread to calculate the I.V.

    Screenshot on its way…

25. Thanks Dman

    Market fading again.

    KOG – need to dig up my little valuation model there, can’t seem to locate. In an acquisition they after a successful well they probably go north of a buck, less than $2.

26. z — my back-of-envelope estimates about $1.40/share… so, right in there with you.

27. FSLR, SPWRA bucking the market.

28. D – watching that, might be simpler/safer to play TAN than the swings in FSLR.

29. KOG — hearing on #3 well (with XTO) “oil over the shakers.” But, I expected that. Frankly, I thought they would be done drilling #3 by now. Maybe that’s the next PR… XTO is the operator, so guess it’s up to XTO to put out a press release. That said, XTO could use some positive news themselves, so maybe that’s the next peep we hear about KOG.

30. LGCY, a Texas MLP, early this am got a buy out offer for 40% above current price.

31. Petrohawk Operating Co. will drill the Jazzmaster Gas Unit Well No.1H in a Wildcat Field. This well will be drilled 4.91 miles northwest from Waskom in the Holloway, W Survey, A-313. The well will bottom at 16,000- feet.

32. Patipati – thanks. That values their reserves at a little over $3.50 per Mcfe which is rich given the current pricing environment. Not having much of an impact on anyone else today but serves as a good high data point for future reference.

33. Thanks Popeye, sounds like they are getting ready to spud their first Haynesville well in Texas.

34. Watching HAL and BHI dribble lower, not really prone to add to or take anything off the table this morning. Somebody let me know if Najarian says anything about a buyout of HAL again.

    Would still like to see CRK weaken up a bit more with the market.

35. HAL proxy out, don’t see anything on the docket regarding a poison pill.

36. Tater – Can you look at CRK, GMXR, and SD when you get a chance, thanks.

37. SM getting hit on those well results, that’s a story that needed stronger prices before and now moves into the need for strong prices and to prove itself in the Haynesville camp. A second well is drilling there but that may take awhile. They said this first well relates to about 10% of their 50,000 net acres in the H.S. and that they believe it was damaged but are not sure.

    They are also drilling in the Eagle Ford currently having been in a couple of wells with APC/TXCO.

38. Re 27 – SM was amongst big IP wells with their first test (4.1 MM/d IP). The second well will be a vertical test in E. Texas. Not sure I get the point of that as there is plenty of data around and no need to reinvent the wheel, nor will the rates impress anyone. So they are just drilling a relatively cheap well they can re enter later and add the lateral to. Not sure that goes over well, maybe purpose is to help hold leasehold in addition to education. Hmmmm. Not much of a catalyst there at all…feels like dead money. Hedges are not huge (50%ish in 2009 and sub 40% in 2010) so these guys are going to need high prices and soon.

39. Mulling entries on the long side in EOG and CLR/WLL.

40. Should have said, mulling those names for purchase tomorrow or Wednesday, all the charts look similar with gaps to fill last week. EOG is cheap and the most liquid name here and works better at lower oil prices. They remain unhedged on oil volumes as does CLR.

41. ZTRADE: Added 5 CRK $35 April Calls (CRKDG) for $0.65 with the stock off about 4% with the market and with an initiation of coverage at neutral from a brokerage. These are the ones we sold last week for $1.05. The company should have an operations update any day now and I’ll add more calls if it fills the gap on the chart around $30 prior to that update. Call activity at this strike is abnormally high today so I’d bet a lot of people are looking for that update which may or may not be a good thing. The company indicated in early February it would provide a drilling report in about 6 weeks and we are approaching week 8 now.

42. z- #38, SM. Wasn’t that well a horizontal?

43. txco up 33%

44. Yes, the first well was a horizontal in De Soto, near some big EOG, El Paso, and not to far from some big HK wells.

    The next well is a vertical, over in Texas.

45. TXCO – no news I see.

46. TXCO- maybe got a merger/sale working

47. Could be. Hearing HK has some “very encouraging” Eagle Ford well results to talk about soon. Maybe the thought is being rubbed off on them by analysts making phone calls.

48. Nikki — can you comment on this article… and — more importantly — do you agree? thanks!

    Elliott Wave Sends Sell Signal for S&P 500: Technical Analysis
    2009-04-06 13:41:48.806 GMT

    By Adam Haigh
    April 6 (Bloomberg) — The rally that drove the Standard & Poor’s 500 Index to an almost eight-week high is “losing steam,”
    according to an “Elliott Wave” analysis by DMG & Partners Securities.
    The benchmark index for U.S. stocks will struggle to rise beyond the “resistance level” of 866 to 877, James Lim, a Singapore-based analyst at DMG, wrote in a report today. The S&P 500 has climbed four straight weeks, the longest winning streak since 2007, and closed at 842.50 on April 3.
    The wave principle is a theory developed by accountant Ralph Nelson Elliott during the Great Depression. He concluded that market swings, or waves, follow a predictable, five-stage structure of three steps forward, two steps back.
    Elliott said that waves share a variety of features: Wave two never falls below the starting level of wave one; wave three is never the shortest; waves one and five tend to be of equal length; and wave sizes are often related by a series of numbers known as the Fibonacci sequence, wherein each number is based on the sum of the two previous ones.
    “The current Wave 1 may have already been completed and the ensuing Wave 2 should therefore correct some of the gains that were seen last month,” Lim said.

49. I’ve been liking technical action in several natural gas names like CRZO and XEC…anyone have any views on those

50. Apologies for the delay, had a reboot issue. CRZO is on my short list of names to do more work on. Nice accomplishments with reserve growth, growing via cash flow this year, no need to run out and buy acreage. Will put something together for tomorrow.

51. thx, but no need to alter your plans for my account…I’ve just seen some recent accumulation in the name on the charts and it piqued my interest

52. Thanks Jivey, but it does look pretty interesting.

53. CNBC talking head just said more money came into high yield funds last month than all of 2008.

54. Mt Redoubt forces CVX to shut in 7,500 bopd.

55. Stocks like watching paint dry, feels like summer + spring break + Christmas holiday rolled into one.

56. Upstart online brokerage site Zecco had an unfortunate April Fool’s day snafu that they are claiming was an honest mistake. Users logged on to find larger balances than they should have, sometimes millions of dollars extra, and many of those users started trading with the nonexistent money. Happy April Fools. “when Zecco realized it, the company apparently started to force sell, even at a loss, charging the losses to the customers along with a ‘$19.99 broker-assisted trading fee.’ Oops.”

57. Thanks for the chuckle Popeye. Rest assured that will never happen around here, lol.

    Out for 20 minutes.

58. Seems to be the Meredith Whitney vs Michael Mayo show today…

59. BOP – It looks like they are on the same negative banking sector side.

60. Yes… but, Meredith’s comments sent the market up just now… Michael’s opened them lower. So, think there is a disagreement about “how bad.” No one thinks banks are out of the woods. We just want constant reassurance that they are not all going to be nationalized. Also, Meredith reiterated that she thought 1Q earnings would be good, vs expectations. Lots of bad stuff still to come, no argument, tho.

61. ram — just wait 5 minutes… i’m sure something else will send the mrkt screaming in the other direction.

62. Ok, back now, obviously missed bunches, lol. Feels like May.

63. Meredith Whitney CNBC interview follow up
    2009-04-06 19:37:41.330 GMT

    [ Live In Play]

    Meredith Whitney CNBC interview follow up

    Meredith says shes not bullish by any case, but would be very careful pressing shorts here. She says all rules are subject to change once you bring in the government into the picture. She says the reality is tangible book values will go higher in the near term. When asked if she would commit capital to the financials she says this qtr is going to look stronger, perhaps private capital comes in to support some of these financials. She says the new housing data is the “head fakes of all headfakes”. When asked about earnings in the financial sector she says several technical and one time factors will lead to
    Q1 profits and capital creation. Meredith says some investors may buy into earnings and react they way they reacted to Friday’s NFP number and think the worst is over. She believes these investors are incorrect and after the stress test findings come out, she says some decent size banks will not pass the stress test. She says be careful at the end of the month when the stress test findings come out, it will be another grim period for financials

64. Epperson made one point that makes sense and I made awhile back re diesel. It’s probably going to be cheaper than gasoline this summer given where inventories are now. I’m going to get on the phone with a buddy that runs a trasports fund and get some ideas on truckers.

65. TXCO: 5x average volume today

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