Wrap – Week Ended 10/02/09



Wrap Comments:

1) Energy Stocks continue to trade high beta to the broad markets, having ignored a mid week bounce in oil last week. This has been the case for the last several weeks but we should transition more towards a tighter track of energy energy futures in the next few weeks. With last Friday's payrolls report out of the way, the spotlight should now shine on more company specific data (earnings for the broad market) and less on economic data. This coming week's opening earnings round from AA and light economic data calendar should reinforce this connection. Earnings for energy names won't start for another 2 to 3 weeks. Oil service continues to lead the pack in energy land and analysts continue to push Service over E&P and the Majors despite a known lack of pricing power in 2010 in North American Focus markets.

2) Natural Gas Storage Hits Record, No Surprise There.  With injection season drawing to a close over the next four to five weeks, attention will increasingly turn to early cold snaps and long range winter forecasts. Supply data out last week showed that the production declines we have been looking for began to materialize in a more noticeable way in July. This is pretty much on cue with the Large Cap E&P predictions that we'd be seeing a rollover by the end of the second quarter, give or a take a couple of months. The LNG tsunami appears increasingly unlikely to occur in 2009 and Canadian gas imports to the U.S. should turn further south as domestic demand north of the border kicks in. My sense is that the short trade in natural is getting pretty long in the tooth and that a good cold snap or two will prompt some covering. Note that the short position in the wrap remains large but that longs are slowly building. We could see a swing to a net long position (Longs less Shorts) in the CFTC data before the end of the year, which would have a positive effect on prices.


Holdings Watch:

  • $10KP II: $12,600
  • 41% Cash

Closed Trades Last Week:  Did more adding than selling last week. The Current Holdings tab is updated. Only two closed trades:

  • WLL – Sold the overweight position in WLL (5 of 10) of the $55 Calls for $4.10, up 32% in a few hours with the stock trading a little over $58.
  • WLL – Sold my overweight in the $55 strike position (WLLJK) added last Thursday and Friday, (15 calls) for $3.30, up 35%.

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