Thursday – Oil Review, Gas Preview + Small Cap Orange Charts

Posted on by zman

 

 

Market Sentiment Watch: Last night futures were up. This morning they are plunging yet again as  Greek strikes and protests take center stage (because if your economy is in shambles it makes sense to walk off the job and go scare away the tourists) and the potential for more EU moves over the weekend. At least that's the popular excuse. Markets are trading in less rational form than normal and I will not put another penny to work until they seem sorted. I've included the Small Cap E&P Orange Charts in today's post for future reference.

In energy land oil continues to key off other commodities and appears to be heading into the mid $60s. OPEC should start loudly talking about heightened quota discipline in the near future. Yesterday we saw the 3rd week of substantially stronger demand for distillates and while no one cares today or this week, what was potentially only an anomaly there is turning into a trend change which is positive for U.S. demand and also for the U.S. economy as a portion of this demand just about has to be for an increase in domestic freight.

 

Ecodata Watch:

  • 471K vs expectations of 440K.
  • We get Philly Fed at 10 am EST, expectation is 22.
  • We also get leading indicators at 10 am EST, expectation is 0.2%. 

 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Preview
  4. EIA Oil Inventory Review
  5. Stuff We Care About Today – Small Cap Orange Charts, Max Pain
  6. Odds & Ends

 

Holdings Watch:

ZCAT (Zman Catalyst portfolio):

  • $7,800
  • 94% Cash
  • Yesterday’s Trades:
    • None

ZIM (Zman Inefficient Markets portfolio):

  • $13,000
  • 76% Cash
  • Yesterday’s Trades:
    • None

 

Commodity Watch:

Crude oil rose $0.46 to close at $69.87 yesterday, after the EIA released what I would term fairly positive numbers, especially for the refining community (see below). The July contract takes off as the prompt month tomorrow and is trading at $70 this morning, down $2.45.


Natural gas tumbled 4.2% to close at $4.16 yesterday, capping what had been a week long modest rally.  Today the Street is looking for the first sub average level injection of the season due to better weather conditions for demand. This morning gas is trading flat.

Natural Gas Preview

  • My number: 73 Bcf injection
    • Last Week: 94 Bcf Injection
    • Last Year: 100 Bcf Injection
    • 5 Year Average: 90 Bcf Injection
    • 10 year Hi: 110 Bcf Injection
    • 10 year Low: 50 Bcf Injection
  • Street Consensus: 77 Bcf injection

EIA Oil Inventory Review


Crude:




Gasoline:




Distillates:




 

Stuff We Care About Today

Blah ----

 

Small Cap Orange Charts

The charts will be added to the Small Cap E&P tab for future reference.

Other Stuff:

CHK Foreign Interest - Korea Investment Corp and China Investment Corp are in talks to each take $300 mm stakes in CHK preferred stock. This probably won't get a lot of notice anytime soon.

Max Pain - Max pains are generally quite a bit above current levels. That often happens when the market has run hard in one direction in the 2 weeks prior to expiry and it may not mean much but at least there is not an impetus from that perspective to further beat down our names.

 

Odds & Ends

Analyst Watch:

  • Nada, analysts are hiding.

175 thoughts on “Thursday – Oil Review, Gas Preview + Small Cap Orange Charts”

  1. IM from XAC Strategist this morning… not much to add here —

    Credit is pointing to a very bad day even though the congressional vote yesterday pointed toward sanity being reinstated into congress and the market…. and the realization that Ger manuvers are similar to pissing into the wind….Nevertheless, it seems as if it has become a very profitable trade to try and push credit indices wider at the opening before convering on any rally….if the market is giving traders an easy trend to follow they will follow it….one last thing…Credit vs equity volatility remains extremely high….we expect this credit volatilty will eventually spill over into the equity indices…a spillover that could generate a 50 -75 pt movement in the SPX if historical relationships reestablish themselves. Despite what models might indicate, we believe it is more likely that credit volatility will subside rather than generate a huge knee-jerk sell-off or rally, and we also believe that a gradual reduction in credit volatility would facilitate another equity market rally…a rally that could last through the summer….the reduction in credit volatility would likely be a good indication of a new bottom…

  4. Morning all.

    I did mention yesterday that the failure to move above 1120 was likely to result in us retesting the lows and lower. 1090 was my next support level. 1088 is the 78% retrace of the rally off the 6th May flash crash low.

    For the bullish count 1065 is a must hold and ideally 1070.

    With the bullish count I would expect us to make a low between 1080 and 1090 and then stage a pretty big bounce. We are still likely to make another move lower into the first week in due however. 1044 remains absolutely key to the chart pattern for the rest of the year.

  5. Nicky — yep. You called it y’day. Pls hang around today, we could use your (good) sense of the mrkt. Thanks.

  6. TED at +32.4 making new wides (since last August)

    IG +8bps OUCH. Want to see this stablize… will be monitoring closely.

    HY -1 5/16 pts

  7. Thanks Nicky.

    BOP – how’s credit and any thoughts from HT.

    I honestly expect Germany to approve the euro-zone package and for markets to get a lift on that. Unless one of those policeman in Greece goes ahead and takes my suggestion to use his nightstick. Kernon doing the voice over this morning for the angry gesticulating protester. “But I want to retire at 40!”
    “And I want to have $100,000 in my pension account!”
    “And I don’t want to pay taxes!”
    You have to wonder at the Union logic of protests like this.

  8. There are a couple of areas where I may violate my rule on not putting more pennies to work. Not for options but in a couple of names. KOG which may go sub $3, WHX which is down nearly 30% in the last 2 sessions and will pay and LINE.

  9. I have to put the bearish count out there although its not my preference but in light of BOP’s comments regarding credit. If we start to really fall apart and take out 1065 then this could get very ugly. Obviously there is support at the 1044 Feb low but below that you are looking at 1000 and then 950.

  10. thursday piost = chart-o-rama

    I like that distillate demand chart in particular – signs of recovery there in my mind.

  11. BP update:

    The BOP brain package is back on the BOP. This should give them pressure data and sets them up to start the top kill procedure on Sunday (probably 2 to 3 weeks to complete).

  12. 1520 – Yes. I have a call into my transportation analyst friend to see if he can confirm increased 18 wheelers rolling.

  13. my father in law – UPS pilot – says they are seeing big loads across the entire system. He flies back and forth from Asia and says loads there have been really good.

  17. Can’t even get a couple of point bounce on the open either BOP – we go lower….

  20. Problem is… no reason for buyers to step in front of the freight train.

  22. BOP – probably not before the weekend no. I do expect a pop (from what level who knows?) when German parliament votes to pass the support package later today.

  23. Not seeing my smaller cap names trading at all today. Weird. Tells me there is not across-the-board panicked selling… just hand-sitting, day-trading, and the painful wait for this to “be over soon.”

  24. Talking to a Global HF mngr last night… he sees no reason to sell his positions. He’s just waiting for it all to settle out. He was buying a little bit last week… but doing pretty active Hand-Sitting right now. That said — and I repeat — he is comfortable with what he owns and is not selling. Just sharing…

  25. You can add KOG under $3.20 now.

    AEZ down $1.50 since their recent successful well at $5.50.

    BEXP $6+ off the highs from 2 weeks back.

  27. Anyone notice gold starting to move up again. I was a little off on my levels as I had a zig zag which would go up to 1220/25 (think it went to 1227) and then down to 1180 (it went to 1176). By my count it should now head up hard….(I made a comment that I thought the move up would start yesterday so I am a day out too!).

  30. ZTRADE – WILDZ – HAL

    Added (100) HAL $27 May Calls for $0.15 with the stock at $25.80. This is obviously an “Enough Is Enough”, high, high risk trade. The is off nearly $10 from the pre BP spill highs and continues to claim indemnity and continues to fall with this market on a daily basis. Otherwise I am sitting on my hands today.

  31. Although we are miles away from the level if we were to take out 1173 on the upside (we were only there a few days ago!) then that would be my confirmation that the cycles have put in their low. I will be able to adjust that number in due course.

  33. Did the flash crash lows get adjusted for all the reversed trades or are the charts permanently painted like that?

  35. As an aside: Is anyone completely adverse the the uptick rule being restored as a reasonable part of Fin Reg? There have been lots of studies showing the massive increases in volatility since it was removed.

  37. You do have a downtick rule… it’s called you can only buy as much stock as you have money.

    You can sell stock to infinity because you are getting net credits.

  38. I am completely wrong on gold by the looks of things. Liquidating it for margin calls?

  39. July crude trading down $3 at $69.50. The way the front months are coming off reminds me of late summer 2008.

  41. XAC Strategist thinking we just saw the wave of capitulation selling in credit… hope to confirm that soon.

  43. BOP – thanks for the international color. Unfortunately I’ve got way too much emerging market exposure – we’ll it’s not so much in $ anymore. I’ll be doing some hand sitting out of necessity. Ouch.

  45. RE 44: Lack of uptick rule contributor. I really don’t know what people have against it. I can tell you without a doubt right now that’s a contributing cause and the govt doesn’t even have to pay me for that nugget.

  46. #44 – how comforting is that???? Who is going to step in and buy knowing it could happen again. Likely in the next couple of hours at this rate.

  47. VTZ – any thoughts on gold here? I could really see it either way which I know sounds ridiculous.

  48. italy — i don’t know what EMs you are in (and they aren’t all equal, of course), but just pinged my global macro guy… he is now fully-reloaded on his positions (which include KOG and E21, by the way)… says this isn’t “fun”… but if he wasn’t running a fund, he wouldn’t be worried. It’s taking the panicked investor calls that make this job suck.

  49. 76 Bcf – in line. Nice change of pace for injections and peoples models are working a bit better but really a non event unless you either a) string several weeks of this cold weather together or b) switch over to summer very rapidly. Gas off 6 cents, minor pop after the number. We’re still very full. Expect range bound gas $3.75 to $4.50.

  54. Z: It is an index that measures the level of panic. Just wondering if anyone has access to latest number. I will also check.

  55. Re 47: Right now I see this as consolidation and shakeout of the weak hands who bought on the breakout above 1224 and 1228.

    I think gold needs to hold the 1150-1160 band of support or we could see that technical selloff to 1075-1080 that lots are looking for, but I see that as the absolute low and wishful thinking by all those who don’t own it much lower than here.

    Ideally, I would like to see it consolidate between these levels and 1150-1160 for a week or two before the next leg up. After this consolidation I think it would allow us to extend to new highs above 1300

    I do however expect volatility to increase and it would not surprise me to see $50 and $100 moves so a one or two day $100 dollar drop to 1080 would not really phase me.

  57. HK – agreed, also unfortunate for them if they have good but not great stuff to disclose and the market is still spiraling. You’d think that would be a good opportunity to get long (or more long in my case) but so far this year the analysts have done a very good job of ignoring the stock. Right now, most analysts are ducking and covering (either not talking much or downgrading on commodity price moves). Hard to blame them when you have this kind of market and it falls on deaf ears like HW’s recommendation of EXXI yesterday.

    Tom – didn’t know that one. Thanks.

  58. re # 55 – thank you..

    If my more bullish count plays out then we have embarked on v up and it could get really wild to the upside.

  60. SPX now has resistance in the 1188 – 94 area. Then again at the 200dma at around 1202.

  61. RE 58: I’m not sure about wild upside yet but confidence in the markets has been shattered by Greece, the flash crash,and the actions of governments around the world and gold will continue to benefit.

    There will be catalysts for gold for years to come as this plays out unless things start falling apart quickly in which case there will be wild upside as you say.

    It has been extremely costructive that gold has increased as the USD has increased because it has broken those shackles concretely and can move largely by its own devices (minus the blatant manipulation) rather than algorithm selling every time the USD increases.

    I also seriously doubt that 1250 was the high for this wave.

  62. Credit data point. Just got my first credit card limit hike in I don’t know how long. We don’t use credit cards except for point so they have been cutting limits for awhile now.

  63. Eld – well, it’s back to close to my original buy in level, given the story I’d call it cheap but the market could make it cheaper.

    KOG at 3.03. Off over 1/3 from the high.

  64. I am going to throw another possibility out there for the indice count. That we are currently in a b wave down to test the May 6th low before catapualting higher again in a wave c back to the highs. One to watch if we hold the May 6th lows.

  66. re 64. Yes, that’s the camp I am in as well although I sort of think we don’t need to go all the way down to the bottom of the flash as the levels then really were not what I’d call real.

    CNBC saying finreg bill on track for vote tomorrow. Derivatives at banks still not worked out but a compromise may allow banks to set up a subsidiary to hold derivatives so they don’t have to get out of the business entirely.

  68. Volume picking up on this pop in the S&P in several of our names. Higher than it was on the morning sell.

  70. BOP-
    FWIW-I tend to keep an eye on the junk bonds for credit mkt indications. Combined with your excellent tracking, it helps me.

    The two I watch are off big time this am (relatively) altho they are coming off from their lows of the morning fairly rapidly.

    JNK >-3% HYG = -2.74%

  71. choices — thank you for pointing that out… we have bounced off the morning low for HY… still down a full point, but better than being down 1 1/2 points.

  72. hmmmm…. HY down 1 1/8 pt now.

    Seems to me, where we close today is going to be pretty important.

  73. FWIW:

    TBT may be of interest (2x inverse Tbond index) Tbonds have had a run-not likely to continue into the summer IMHO.

  74. Coals have seen a major correction from recent highs. Goldman just removed ANR from their Conviction Buy list.

  77. One thing I can’t help noticing is that certain stocks were unaffected by the flash crash. I haven’t yet found a gold/silver stock with a big negative flash-spike.

    It seems to me that where institutions had an underlying bid, there was no flash-crash.

    This rule may not be 100% valid, but when you see WHX now down to its flash-crash level, it looks like that price was “real”, i.e. that was the level where there was a substantial bid as opposed to high-frequency trading or whatever.

    Just a thought.

  78. choices — #73… unless the EUR/EU falls apart, that seems like a wise position to take. I would hope we knew pretty soon, if the EU is going to hold together. It should… but, like the fear that banks would be nationalized in fall/winter 2008/9, people need some time to be certain.

    btw, seeing headlines now that the dems have the 60 votes on FINRA. Too day. But, you can usually count on the help from the two women from maine…

  80. #76 – nice to see. I’d like to see that start to matter before the end of the day. HK haning in there better than the market.

  83. #77 dmsn: I had the same thought about other stocks, using the 5/7/10 low as a reference point. There is a small problem with some stocks though: that would be 10 points down for LINE, 4 for HK…you get the idea.

  84. Wow. I just tried logging on to my old TDAmeritrade account where I have a few residual positions. Couldn’t log on. Just called them & they confirmed the web site AND automated phone trading system are “currently unavailable”.

    Can anyone say “panic”?

  86. re # 84 – I have just heard someone else say the same about Ameritrade – trading system down and phone system down due to overwhelming call volume. That is very worrying. Bob Prechter warned years ago that when things finally imploded neither longs nor short would benefit because of exactly this.

  87. Dman – about 18% as that’s when I got in. Am considering an add there too. That’s fully hedged (except for any growth from things like the G.W.) through 2013 and any acquired volumes. Deal worries out of the way for now, just waiting to see if the irrational lack of exuberance hits again so I can scoop it.

  93. BOP – I am guessing were are back to the wides? Market nearing lows again.

    July crude down $3.30 at $69.

    Cargo – I have them doing $2.50 for the year including the $0.70 1Q dividend so 16% but yep, a good rate. If I back $10 out of my forward oil price assumption for Q2 – Q4 that takes the distribution for the year only down 8 cents to $2.42.

  94. #81, HAL, the question is, are we going to see an emotional wash out to new lows in the S&P across the board…panic selling to new lows? I can only imagine the $NYMO level at this point…incredibly oversold…I’ve used this condition to buy add’l KOG under $3 this morning…once the washout happens, I think, the probability increase for a sustained rally

  96. JB – thanks, lots of suddenly broke charts out there, HAL among them. Could be real buyers wait for lower $20s. The way the market continues to pound lower the coming spike won’t be all that far away from the oversold conditions.

  98. Nicky, thanks for your continuing comments. Do you see support on Gold at 1160?

  101. When’s the last time spot oil was cheaper in July than may? Doesn’t seem that happens too often

  102. Choices – as you can see I am not doing a great job of calling gold! Now they are in sell everything mode then I suspect gold is likely to be sold too but who knows as they may run to it in the flight to safety. But yes looking at the chart there is support at the 1160 area.

  103. I just got back into TdAmer-was kicked out with Firefox and could not get in for about 30 minutes-also same experience with phones on direct dial number!?

  104. JB – indexes not flash crashing yet but I am seeing bids on the wrong side of asks here and there, a big sign of a discombobulated market. Very different feel to it thought than the May 6 move, at least so far.

  106. RE 98: No matter whether gold goes up or down on days like today, realize that ultimately days like today are bullish for my tinfoil-hat-wearing cause.

  107. RE: #104 as of the moment, there are some bullish divergences out there, the EURO is holding up really well, if the S&P recovers at bit I think the EURO goes higher…

  108. JB – noticing that all day to day as well. They want to retest the 1065 level it seems. If that goes 1050 may hold it today. That said the bullish abc count remains on the table…..

  110. #106-thanks, V. PHYS is actually up today, 1.6%, CEF off 1.7%-silver holdings hurting CEF-I’ve been buying PHYS on the way down, ignoring the very high premium, because I am convinced, as you are, that gold will be the answer to this insanity.

  111. But it was at the wide of the day (12) when stocks hit their low of the day, fwiw.

  112. #106 – I’m a bit disappointed to hear your metallic brain-enclosure is made of tin. I was expecting silver at least. Gold would be expensive, I admit 🙂

  113. WHX only $2 above what the recent downgrading analysts called NAV. Wondering if that gets an upgrade to Hold when the markets settle. My sense is the yield will again attract buyers when people start paying attention. I know my “high yield” money market account is paying 0.5% which isn’t exactly blowing my skirts up.

  115. TDAmeritrade website back up. I’m not doing anything in that account but at least I can now see what I’m not doing.

  117. some good yields on some of the high yield REITS, trusts,
    royalty trusts etc.

    LINE – 10% +
    PWE – 10% +
    RAIT Financial preferreds – ex div next week – 12%+
    SJT – 10% +

    I’m no technician but this feels overdone.

  118. RE: #108, Nicky, 10 pt move in S&P, but I agree, still not really a capitulation, for today sure would like to see S&P futures get and hold above VWAP, about 1087…

  119. Barney Frank claiming he was not really behind the whole “get people to buy homes” movement”, that that was Clinton era stuff that got out of control but not his doing. Wow, say it often enough and it becomes … nope, still a lie.

  120. HAL starting to show a little divergence since the early low to the S&P.

    Eying LINE and WLL which look even weaker here.

  122. re 118 – watching a small inverse h and s start to form on the spx. If it can hold the 1077 area we may be on. How about a 200 point rally into the close in the final hour?

  126. Looks like the EURO is done for the day, this leaves the S&P a bit low on bullish fuel

  129. Eld – I think they were driving the best bargain they could get. There was not an immediate need when they started. BOP may want to chime in but on the last call it sounded like they were more than pleased with both the size and the proposed terms of the revolver. I don’t know why they have not yet crossed all i’s and dotted all t’s yet.

  130. elduque — KOG… don’t know. Was just talking to someone about that. Guess it’s time to ask the company…

  135. MLP yields: at risk of being too bearish, LINE’s yield topped around 21% and bottomed around 9%. A one-third retracement would be 13%, or ~19.5 stock price.

  137. by the way the 200 point rally was the dow! No wonder you thought it was worth a hat if you thought I was talking spx. As I am talking SPX levels I can understand the confusion!

  138. Futures continuing to hold VWAP (vol weighted avg price) and S2 pivot level support at 1087 (a few intraday indicators I follow)…euro supporting…looking good

  139. I want to see it get moving JB – it will be self fulfilling if the bears start to cover. Too much hanging around here and they can take it down again.

  142. RE: #139, I agree, something needs to happen soon, bulls need to take it higher within the next 15 to 20 min

  145. 143 — ugh. A “bad marriage” is worse than no marriage at all. But, that is not how our Govt thinks.

  146. As I said yesterday market doesn’t like it when it doesn’t pass and now it doesn’t like it when it does pass.

  147. Z: Today the % of S&P 500 stocks above the 50 day MA = 7%. Last time this low 3/09 & 9 – 11/08.

  148. What the hell is CNBC talking about – saying we are beholden to the euro and have not mentioned the 200 point rally in the last two hours in the euro.

  152. Re: #151, Probably means 20% higher…$NYMO is going to be at historic oversold conditions

  153. I am hearing Asia is closed tonight which I hadn’t been aware of. That and Germany closed on Monday may make me full a little more bullish.

  154. I am forgetting the German vote on the Greek bailout tomorrow. If they vote against it then likely all hell breaks out.

  155. re 154. Agreed. Also talk of a Swiss intervention.

    HK had been holding up better than group but not now. Best performer on my energy screen WNR (not going to touch that) and then BP.

  156. Well… I guess this is what happens when you never solve the financial problem and instead try to hide it by taking trillions in assets off the balance sheets of some companies and giving away free money.

    This financial crisis saga isn’t going to be over until everybody feels the pain, including states and municipalities in the US as well. Contrary to popular CNBC belief, the “PIIGS” aren’t the only ones who dabbled in or have exposure to masses of derivatives to hide debt and eventually once more of this crap explodes we’ll see just how much.

    Weird how having a quadrillion dollars of derivatives isn’t good for the financial system… Who’d have thought this wasn’t going to end well?

  159. IG closed at +10 bps. Wides still +12. For a while there, equities were outperforming credit… but in the end, they ended up about at parity… according to XAC Strategist’s regression model.

    Govts on a global basis not giving the private sector any reason to want to invest in “risk assets.” So they aren’t.

  162. Shorts are loving it… many have a target of 950 or lower for the SPX for this move down.

  165. Closing thoughts from XAC Strategist…

    This morning we wrote that “Credit vs equity volatility remains extremely high….we expect this credit volatility will eventually spill over into the equity indices…a spillover that could generate a 50 -75 pt movement in the SPX if historical relationships reestablish themselves.” We then went on to say that we “thought” the model’s results were too bearish because we expected credit market volatility to gradually decrease for a number of reasons…one of these important reasons were nullified by 10:25am when it became more apparent that the senate had decided to use brute force to determine how they think the financial sector should operate. STUPID STUPID STUPID!… to top it all off… credit market volatility remains exceptionally high…meaning another move of today’s magnitude (up/down) is even more probably…..

  166. “no more complex backroom deals on Wall Street”

    What precisely does that mean?

    And can we apply it to Pennsylvania Avenue too?

  167. The “complex backroom deals” move from Wall Street to 1600 Pennsylvania Avenue… where Govt thinks they belong.

  168. Levin talking about the Jobs and Loops bill. Extends unemployment and adds a $ fee to each barrel of oil produced. Congressman said it was “due” but when asked couldn’t say how much of a tax it would be. Had been said to be 1 cent per barrel but he said “it’s more than that” but didn’t know how much more. Nice to know these guys are on top of their legislation.

  169. Market Summary

    · Market Update – very ugly close as the sp500 finishes off 3.9% to 1071; latest % decline in 13 months; we ended at the lows in a very ugly fashion. It was a volatile afternoon w/o a ton of real news; traders discouraged that sp couldn’t rally despite a spike in the euro and despite a successful cloture vote. On the WEI page on Bloomberg (list of world’s major indices), only the German DAX is currently above its 200day MA (SP500, Dow, Nazz all broke through 200day MA today; R2K sitting just above its 200day MA). SP500 now off 12.1% from the 1219 4/26 highs. A lot of the same problems continue to weigh on sentiment. At the macro level, investors are viewing all the possible outcome scenarios in Europe as negative. If the governments are successful in implementing steep budget cuts, economic growth may suffer substantially (late in trading today Spain came out and cut its ’11 growth outlook from 1.8% to 1.3% b/c of new budget measures) and deflation could very well set in (the Spanish deflation reading of last week is still reverberating). A large QE program could help offset such a downturn, but the ECB/Trichet hasn’t shown any willingness to go down this road (in fact, Trichet again today reiterated that he isn’t conducting QE at the moment as all the sov bond buys are being sterilized). Alternatively, European governments may prove incapable of pushing through austerity measures (see the latest round of Greek strikes today) and the debt crisis will only escalate from here. On the global growth front, the consensus view increasingly has become that the EU sovereign debt crisis, coupled w/an engineered slowing in China, is hurting world economic growth (Fed governor Tarullo today acknowledged the risks to the US recovery from the ongoing problems in Europe). In the US, not only has growth shown signs of faltering (leading indicators and jobless claims today), but deflation is also being mentioned as a risk (following the CPI reading on Wed; TIPS spreads have been collapsing of late). The regulatory landscape remains highly uncertain – cloture was invoked this afternoon in the Dodd bill, but it looks like the conferencing process w/the House will be just as uncertain as the Senate horse trading of the last week. The unilateral German short restrictions of a couple days ago continue to reverberate w/worries growing that European officials are increasingly at odds when it comes to formulating policy to combat the crisis (there was an added fear today that other countries will follow Germany’s lead on the short sale front given the wide discrepancy now existing in policy); meanwhile, Fed’s Tarullo today stated that there were no additional actions being considered at the Fed re Europe or Greece (beyond the swap lines already opened…and it doesn’t seem like those swap lines are really doing much since there are few signs of a dollar shortage in Europe….LIBOR is moving up in all denominations…..numbers out right after the close today reveal there was $0 lent through the NY Fed swaps in the week of 5/19). On the trading front, the ongoing de-risking trend has been accelerating of late (Bill Gross on Reuters today stated that financial markets are exhibiting a mini-relapse of a flight to liquidity as hedge funds and other leveraged positions are liquidated to preserve capital; the WSJ late in trading today stated that “prime brokers expect more margin calls on Thurs; calls come amid steep losses in global markets”).

    · Desk Color – all eyes are on the macro – trades being led around by every headline out of Europe and Washington. The cash desk was on the quiet side. MFs are more active vs. HFs, although a lot of the trading has been dollar neutral and very hedged (i.e. some picking away at top ideas on the long side but hedged away w/a macro short of some sort). A lot of pairs trades, which signals cash levels aren’t great in the fund complex. We are still seeing sellers and shorts, despite the sell-off. The weakness has been pretty orderly on the cash desk (i.e. while VIX spiking as downside protection bought, cash more quiet….a lot of people watching prices dip lower instead of panicking to liquidate positions). There is nearly 0 interest in company specific news/earnings, etc – the macro is dominating. The 1065 May 6 intra-day low looms just 1.8% below here and many are waiting to see how a revisit to that level is handled. That said, the pain trade at the moment would be a sharp spike to the upside (i.e. similar to what we saw in the euro, which has ripped ~4% higher in the last 48 hrs @ the peak at 1.26 today as sentiment had become just too negative).

    · Equity sectors: Financials fell nearly 4.75% on weakness across the board, although regionals were hit the hardest, falling around 6-7%. Industrials were down over 4.5% with higher beta multis and machinery leading the way lower. Energy fell nearly 4.5% on weakness across the board, but particularly in services, drillers, E&Ps, and coals. Materials fell close to 4.5% as well on weakness across the board. Discretionary was off with the tape on weakness in autos and some dept stores. Tech was down 3.5%, which made it an outperformer as semis were only off 3%, giving the group some support. Staples, healthcare, utilities, and telecoms were off around 3%. Despite outperforming, this sharp fall in such defensive names shows that investors really don’t want the risk of being in equities in the near term.

    · Commodities: Crude rallied off its lows, though still finished down ~2.65%. After rallying earlier in the day, Natural Gas sold off and finished at $4.12, down ~0.8%. Gold finished at $1183 in choppy trading, down ~0.8%. Copper weakened into the bell, though ended up ~0.15%.

    · FX: USD (DXY) fell sharply in the early afternoon, and closed below $86, down ~0.7%. The dollar gave back much of its earlier gains vs. the pound, though finished up ~0.3%. The dollar finished down ~2.2% vs. the yen, trading flat in the afternoon after selling off in the morning. The euro spiked in the early afternoon on speculation the ECB may intervene [Bloomberg], though came off its highs to finish up ~0.7%. The euro also surged vs. the Yen, though closed off its highs, down ~1.5%.

    · Corp. Credit: Corp Credit stay mixed in the afternoon – as the trend of IG 14 lagging stocks (out 10 bps) and HY 14 trading a bit ahead of the tape (losing 1 3/4 of a pt) held in the afternoon.

    · Treasuries: Treasuries came off their highs a bit as equities came off their lows. The 2s finished yielding 72 bps, and the 10s finished yielding 324 bps; the 2-10 year spread continued to flatten and closed yielding 252bps.

    · Financial regulatory review – the second cloture attempt was successful this afternoon, as the Senate voted 60-40 to end debate on the Dodd overhaul bill. A final vote in the Senate could come on Thurs. However, the bill as it stands now contains the original Lincoln swaps ban provision, which would be a major negative for the financials. The Lincoln amendment is opposed by the Treasury, Fed, White House, and banking industry, and the strategy now would be to strip it out during the conference process w/the House. The Levin/Merkley “Volcker Rules” amendment also is unresolved and will prob. wind up being addressed during the conferencing process.

  171. Thank goodness for BedTime Market Strategist! This is a good read (mainly b/c I agree…)

    Echo Panic.

    The markets never cease to amaze. A large portion of the 83% rally from March 2009 through April 2010 was referred to as an “Echo Bubble.” An echo bubble is a smaller bubble that emerges during the bounce after a larger bubble has crashed. Investors are comfortable participating in such moves because they see familiar signposts within the prices, news and market developments. We have not been among those who believe the recovery rally was an echo bubble. Quite the contrary, we believe the U.S. has had many of the same problems post-bust as we had pre-bust. Early on, the re-pricing merited taking the risk and finally acknowledging the problems placed us on a path to repairing them. The selling that is occurring in the equity market today is an “Echo Panic.” Investors see many of the familiar signposts of 2008, such as over-leveraged entities, only today they are governments as opposed to banks. Other occurrences are risk spreads widening, government bailouts, shorts being banned and anti-market political rhetoric. Deflation fears are re-emerging as commodities collapse. There is massive de-risking and a flight to quality. The list goes on, but despite the similarities, this is not Credit Crunch 2.0.

    As it stands now, there are several critical elements missing. First and foremost is the lack of a systemic failure. There has not been a Lehman yet. Greece could have been it but the EU-IMF delivered the funds necessary and Greece paid off the €9 Billion in bonds maturing yesterday. Granted, Greece’s problems are not solved but they are also no longer an imminent catalyst. The rash of failures/quasi-failures/nationalizations that occurred in 2008 all had balance sheets and investor bases of tremendous size. The fundamental repercussions were real and thus took time to work out. The breakdown fueled the further deterioration of fundamentals throughout the economy. The question is whether investors believe the fundamentals of the economy have changed. Did the volatility in financial markets reverse the course of recovery? It may have altered it, slowed it or provided a headwind, but reversing it is much harder. Bottom line is Governments have far more influence over their own destiny than an individual financial institutions do, and survival is the politicians preeminent skillset.

    The widening of risk spreads is getting attention. The TED Spread has risen to 33 basis points from a low of 13 last month, or the 3 Month Dollar Denominated LIBOR OIS spread to 25 basis points from 7. The levels are half of where they shot up to during the summer of 2007 as the crisis commenced. From those lows, the market rallied 12% before the big bear move commenced. Today’s S&P 500 has sold off 12% when risk spreads have only blown out half as far.

    While we like to watch for history to repeat itself, we suspect this is much more likely a rhyming scenario. It looks and feels like 2008, but it is 2010. Lacking an imminent fundamental catalyst, what is the staying power of this panic? Any type of down move tomorrow is one that investors should be looking to buy into, even if only for a trade. We still believe the market’s intermediate term upside is capped around 1200, but that is 12% higher. It is rare that investors are offered such violent and quick corrections in an environment that is fundamentally improving.

  173. I’m sorry to say BOP but that guy sounds like he’s looking ahead about as far as his nose.

    Greece would have been a systemic failure so I find it hard to agree that because there has not been a complete collapse yet, there isn’t a problem. When 1 trillion dollars doesn’t fix the problem… you have a problem.

    Corporation can get bailed out by governments, what do governments get bailed out by? The ECB and the FED? Sorry but that can’t go on for ever so that the privatesector can cite their fully functioning financial system that has yet to restore almost any sense of recovery to main street.

    Earnings that come at the expense of job cuts is not growth. The YoY revenue comps are still bad, they only look good against what they are compared against.

  174. WHX calcs gone wrong!

    I think they have 9.11 MMBOE (8.20 MMBOE to the 90% NPI) at the rate of 349 for the first 3 months of 2010, so for the year they will produce about 1,396.

    8.20/1.396 = ~5.8 years of production left

    [15.5% is from comment 144]

    15.5% * 6 years = 93% will be paid back at current return by the time their oil is gone. ~80% of their revenue comes from selling oil.

    I am sure I am missing something obvious. Can someone please point it out?

  175. Mim – my thinking on it.

    58% of volumes are oil, pretty steady, more of the balance of revenue coming from oil due to prices as you indicate.

    I expect higher oil prices this year than next and a recovery in natural gas prices late in the year with better prices for a 2011 average.

    The reason they beat my estimate was a severe contraction of gas price differentials in the quarter. That small spread is unlikely to continue to going forward but I continue to model a wider differential than I think will occur along with slightly faster than historic production declines and higher than historically average operating costs, all to be conservative.

    I only plan to hold for 2 years.

    My thinking is that when the dust settles people will again look for yield and look for what took the biggest hit and has the safest distribution profile. At 15.5% or thereabouts, this should be one of the names they return to.

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