Wrap – Week Ended 5/3/09

Holdings Watch: Busy Week, We closed a number of positions into market / group strength last week, while repositioning for an extremely busy roster of E&P earnings in the week ahead.

  • HK - $10KP - Sold 1/5th of the HK $24 May call position, for $1.00 on the mid, up 60% (basically just taking the profits off the table).
  • HK - Took another 2/5ths (20 contracts) of  the HK $24 Call position off the table for $1.25 (up 105%) with the stock at $24.

  • HK - Sold the HK $22.50 call position for $2.10, up 95%, small position but the stock has had a good 4 day run and it would probably give quite a bit back on a dip.

  • Sold the SWN $35 May Calls for $3.20, up 226% with the stock at 37.75.

  • Sold (15) (which is half) of my May $40 SWN calls for $0.75, up 74% from my average cost. Stock at $38.50 at the time. May sell the rest into further strength today. NG is up 20 cents now and the group just feels a little extended.

  • HK - Sold 13 more HK $24 Calls for 1.70, up 179%. This leaves me holding 10 of the May 24s (HKEO) and 10 of the HKEE calls (which I’m likely to sell and reposition on weakness before next week’s earnings).

Wrap Notes:

1) Gassy Stocks Finally Outperform The Service Names. About time. Caused by a big rebound in gas prices? Far from it. Gassy E&Ps, as highlighted here by the XNG, outperformed the markets and the rest of the energy complex last week as natural gas took a breather from its usual decline day after day after day routine for the week.

  • A number of names exceeded CFPS consensus as the Street overshot 1Q09 basis differentials, especially on the oil side of the equation. Looking for more of the same in the week ahead.
  • Long awaited cost savings are also starting to roll through to the bottom line as well.
  • After weeks of outperformance on the promise of cost savings themselves, the service names took a break, still up 26% on the year mind you, but the future is one of little visibility at present.

2) Natural Gas Stops Falling. At least for the week. This looks like bottoming action to me. Is this the turn to higher prices? Probably not yet but the shorts are clearly watching the month supply numbers as well as the weekly imports data and the still declining rig count with increased trepidation. Although I still see talking heads say "its going to 0' I have to feel they are talking their book

  • Storage is bloated, well known and we are going to get exceedingly "full" by the end of summer.
  • February supply data provided little on the surface for the bulls to jump up and down about as a recovering Gulf of Mexico masked a third month of declines from what has been a key production driver, Texas (see production slide show here)

3) Gas Rigs Near 7 Year Low.

  • Gas rigs are down 50% from a year ago and down 45% year to date. This means most of the damage done by the drop in rigs has not begun to be seen in the production numbers.
  • People in the know are now talk a low 600 number for the trough
  • One of the things that has supported service is the expectation of a quick bounce; that illusion is starting to fade with the realization that without significantly higher prices, sustained for several months, the E&Ps are not going to come to the party.  

4) Green Energy Had A Rare Strong Week. First Solar, First Solar, First Solar. Thursday was a good day, with an unofficial ZTRADE favoring well after the stock beat and gain 40 points overnight from Wednesday. A good story continues to improve, see quarter review here.

Have a great rest of your weekend and get some rest as earnings season cranks it up a notch this week for the mid and large cap E&Ps as well as a couple of dry bulks and refiners.

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