Monday Morning … Still Bouncing

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Market Sentiment Watch: Markets trying to build on end of week action from last week.  The economic calendar is fairly light this week and while we get CPI and PPI figures this week, everyone expects  the data to be benign which is good since the Fed is in no position to raise rates anytime soon (I  still say not this year). In energy land, news flow remains slow but we should see a pickup later this week as companies speak at conferences.

Conference Watch: This week in conference land we have a number of our names making appearances at the  Macquarie Securities Small and Mid-Cap Conference (KWK, WLL, BBG, EXXI) and at Enercom's London Oil and Gas Conference on 6/17 (BEXP, BPZ, EXXI, PETD, SWN, TAT, WLL). See full schedule for Enercom here.

Nicky Watch:

I expect to see strength early this week but the rally stall around 1107 - 1115.  Then I would expect to see a pullback into next week possibly as low as 1065 - 1070.  At this stage I do not expect to see the 1040 low be taken out.  Once the low is seen next week I think we should head to 1130 or higher.

BP Spill Watch:

  • Obama says no hard feelings, doesn't want to undermine BP economically. He just wants them to set up a very large escrow account with USA as the account heading. One would hope so since they are going to be paying bills along the Gulf Coast for the next 20 years.
  • Here's a story outlining a possible plan by BP to set up an escrow account for the Gulf and to cut but not eliminate the dividend.
  • Coast Guard tells BP to find a better containment solution, pronto.
  • BP meeting today to discuss suspending, cutting entirely, or placing funds for the 2Q dividend in escrow. My money is on the partial cut.
  • President Obama to address nation Tuesday night but meet with chairman of BP Wednesday.
  • CEO of BP to testify before congress on Thursday.
  • Invest 92L could turn out to be BP's and the Gulf Coast's worst nightmare (see weather section below). They are not yet with a submerged floating riser system so if a storm enters the Gulf in the near future they will be forced to pull off without an easy way to reestablish flow. And in the meantime, oil would be produced at full rate into the Gulf.

The Week Ahead:

  • Monday 6/14: No ecodata scheduled
  • Tuesday 6/15: Empire State Index, Import price index, Home Builders index (F=21, last read 22)
  • Wednesday 6/16:  EIA Oil Inventory Report, PPI (F= -0.5%, core F= 0.1%), Housing Starts (F  = 630K), Industrial Production (F  = 1.0%, last read 0.8%)
  • Thursday 6/17: EIA Natural Storage Report, jobless claims (F = 451K), CPI (F= -0.2%, core 0.1%), Leading Indicators (F = 0.7%, last read -0.1%), Philly Fed (F = 21, last read 21.4)
  • Friday 6/18: No ecodata scheduled

In Today's Post:

  • Holdings Watch
  • Commodity  Watch
  • Stuff We Care About Today
  • Odds & Ends

Holdings Watch:

ZCAT (Zman Catalyst portfolio):

  • $7,200
  • 83% Cash

ZIM (Zman Inefficient Markets portfolio)

  • $5,300
  • 15% Cash

Commodity  Watch:

Crude oil rose 3% last week to close at $73.78. The 12 month crude strip is now trading at  a still quite healthy $78.60.  This morning crude is trading up $1.60.


Natural gas was unched last week closing at $4.78. The 12 month strip is now trading at $5.24. This morning gas is trading 14 cents higher on the potential tropical cyclone forming in the mid Atlantic. 

  • Weather Watch: Hotter

    • Last week's CDDs were 51 vs 55 forecast and 43 normal and 39 last year.
    • This week's forecast is for 70 CDDs.
    • Bastardi Long Range Forecast For Summer: Hot. No chance of cooler or normal summer. He also pointed to a warmer than normal winter this year.
  • Tropics Watch: Troubling ...
    • Invest 92 L is mid-Atlantic and given a 60% chance of development. Tracking resources can be found on the weather tab at upper left.  
    • Bastardi Watch: Bastardi calls it a well organized disturbance, and says that it will gain latitude due to lower than normal pressure, potentially pushing it into the Caribbean by the weekend. He still thinks there will be two named storms by July 4th. He commented that this looks like the 1995 and 2005 seasons (both heavy seasons), when early season storms developing from the east to west track across the Atlantic were precursors for busy seasons.

Stuff We Care About Today

Slow day in energy land (aside from BP). I'll have comments on TGA tomorrow along with a fresh Catalyst List.

Other Stuff:

  • ROSE got a positive nod from Barron's over the weekend



Odds & Ends

Analyst Watch:

  • Nada

Interesting Reading Watch:


96 Responses to “Monday Morning … Still Bouncing”

  1. 1
    zman Says:

    UNG should be clearly broken out today JB, not sure it will have a lot of staying power but with two named storms possibly on the horizon (the first is well on its way and you can see what may be the second just behind it on the coast of Africa now) I could see support and higher levels through July 4th.

    I’m in HK to capture a move in NG and because it has been overly beaten down and should spring up in this environment.

  2. 2
    zman Says:

    WLL and BEXP getting marked higher. Both speaking at conferences this week.

    Don’t expect anything new on the operations update front from WLL as they had news on 6 wells two weeks ago and are likely to save the next Lewis and Clarke well for their 2Q call. They should be able to highlight that they are the cheapest Bakken name again and the stock is marked back to the high end of its pre May run. I continue to hold it in the ZLT.

    BEXP on the other hand is overdue for an operations update, probably 2 but maybe as many as 4 wells. They should also highlight their two big upcoming tests in the Montana Bakken and Rough Rider area Three Forks. I hold it in the ZLT and in the ZIM.

  3. 3
    milepost_43 Says:

    NG drilling/fracing hatchet job…ABC Sunday Night news…no link…quite a long piece with pics of nasty looking “ponds” and interview with enviro “activist” about dangers of fracing fluids…also interviewed API rep with “have you stopped beating your wife” questions….think we will see more and more of this…better not have a major “problem” in PA or NY…

  4. 4
    zman Says:

    MP – hear ya. That and that documentary Gasland showing burning tap water making the rounds. Still, onshore sentiment a great deal higher than offshore sentiment at the moment. Regulation certainly going to increase for both. I understand offshore, the industry is distancing themselves from BP, saying things along the lines that best practices would have prevented the Deep Water Horizon.

  5. 5
    zman Says:

    Analyst Watch:

    HAL – target cut to $35 from $42, rating stays Outperform. Stock should be helped by higher gas prices and the fact that the president didn’t lasso them into the escrow account request this past weekend.

  6. 6
    zman Says:

    I continue to hold HAL in the ZIM. I don’t have the full note on that RBC price target cut but it is most likely a mark to market, or “get yourself some credibility on the price target cut” and has less to do with a reduction to their earnings estimates.

  7. 7
    zman Says:

    I’m working on a WIOWIO update for Tuesday or Wednesday’s post as well after getting a couple of requests emailed in for the Why I Own, What I Own piece on the longer term names.

  8. 8
    Jerome Blank Says:

    RE: #1, HK is already on a P&F buy signal, breaking above P&F trendline resistance, the day should have HK testing the 100 day SMA and topside daily channel line at about $21.50…NG futures pulling back in front of the equity open…

  9. 9
    PackMan Says:

    BP – maybe O will have them fund Social Security and Medicaid also. Why not ?

  10. 10
    zman Says:

    SSN out with another update (almost every other day now).

    SSN saying it has 3 scenarios for production by December. 6,000boepd / month, 10 K / month (considered most likely), and 12K/ month. Apparently they got some questions about their projection last week. Would like to see some cost estimates but none were given. Again no comments on the Niobrara.

  11. 11
    zman Says:

    Pack – I saw some fishermen from Maine were going to file a claim given that the Gulf is the fishes’ spawning ground.

  12. 12
    Jerome Blank Says:

    UNG…$8.50 puts UNG back into X’s, it’s also a double top test of the forming bull flag, but I would really like to see UNG test the 200 day SMA, I believe it has not been anywhere near this zone since July of 2008…

  13. 13
    zman Says:

    Thanks JB. Would definitely like to see it break through last week’s high of $21.69

    Sat image of 92L this morning.
    This looks far from certain to me but it does look more organized than your usual June tropical wave.

  14. 14
    zman Says:

    Analyst Watch:

    OII – Morgan Stanley cuts target from $75 to $70. Stock is at $46 and they have it at Underweight. I don’t know about you but that sounds like a buy, just based on their new target, to me.

  15. 15
    zman Says:

    JB – have you looked at HAL lately? Thanks.

  16. 16
    tomdavis12 Says:

    Z: Would you call WLL the cheapest name relative to CFPS and speed of growth of CF?

  17. 17
    jat Says:

    Re 5, agree, Kurt’s just taking down numbers pretty much in line with Street but the tgt reduction is based on 18x vs. 20x 2011 previously

  18. 18
    zman Says:

    Tom – definitely cheapest on P/CF as CFPS is close to $20 for 2011. CFPS will be up nicely but there are others in the Bakken growing it faster (BEXP is set to double it fro ’10 to ’11).

  19. 19
    Jerome Blank Says:

    Re: #15, HAL..big picture, if you look at the P&F chart you can see huge support at $20, next resistance at $25…

  20. 20
    zman Says:

    re 19, yeah, going to be pretty sloppy for a time but has discounted quite a bit of earnings and potential clean up liability already. Actually, I don’t think they have much in the way of liability, evidence is pretty hard to obtain at this point.

    BP getting dropped again. Cameron did a poor job of defending the company in my view or in offering assistance to them.

  21. 21
    cargocult Says:

    Interesting note about Maine fishermen. The web of life is interconnected and what happens in one part of the world certainly affects many other parts. Just as interesting is the American notion that any mishap in life is fair game for restitution from some party somewhere. Like we are all born entitled to a life with no problems and should one arise then look for the deep pockets to make it all good again if money can do it. But I doubt the Maine fisherman have finances sufficient to fund a law suit as long and complex as will be necessary to prove BP breached it’s duty of due care, and prove the resultant harm to Maine fisheries is causally related. Just my thoughts this morning.

  22. 22
    zman Says:

    Cargo – I hear ya and agree. Sounded like they were going to file a claim along with everyone else. Obama and others have basically said there is no dividing line on this issue. On that reasoning, I guess European travel agents who book less trips to Disney World have a claim.

  23. 23
    elduque Says:

    baltic still falling

  24. 24
    zman Says:

    Nice open for everything but BP, HAL, APC.

    AEZ making a move on $7.
    BEXP waking up.
    HK doing well for the ZIM, about at JB’s resistance.

    KOG – did not see that they are speaking at either conference this week. They should have 3 wells to talk about on their 2Q call and this recent fall I think is overdone.

    Eld – yeah, noted it over the weekend when doing the wrap. So far no benefit from the upturn in the China numbers last week.

  25. 25
    dij Says:

    More high quality technical analysis from Schaeffer, (and Rocky White):


    Interpreting the Chart: Notice that the prior two peaks happened at two completely different times in the market. The first peak, in late 2007, was the perfect time to sell everything. Then the second peak, in late 2008 to early 2009, happened shortly before the SPY stabilized and then rallied about 80%. How is this explained and what does it mean now?

    SPY put options are often used as a way to hedge market risk. The early peak in 2007 came at the top of a bull market, when there was a lot of big money flowing into the market. Put options increased in price, as big players bought into the bull market and needed the put options for hedges. This was the climactic buying that ordinarily happens at the top of a bull market.

    The later peak on the chart was obviously at a time of market turmoil. Again, the rise in put prices was the result of an increase in demand for put hedges. However, this time the demand was out of fear. Major losses had occurred, and despite the very high implieds at the time, managers kept bidding up the prices. This was the capitulation that signaled we were at the end of the crash.

    Implications: That brings us to the current peak, which is now even higher than the previous two signals. It is plain to see that the recent market pullback has seriously spooked a lot of money managers. The indicator shows them scrambling to buy put protection on their portfolios. There is a good chance that this is signaling a culmination in selling pressure. Also, with protection in place, market pullbacks will not be as scary for these hedged players. This reduces the urgency for them to sell when bad news comes out of Europe, or when economic news comes in worse than expected. No matter how you look at it, the strong demand in puts has to be looked at as bullish for the market going forward.

  26. 26
    VTZ Says:

    SU breaking into the PCA piggy bank by selling Netherlands assets again today.

  27. 27
    zman Says:

    Got asked for a free source for CFPS estimates, I don’t know of one, does anyone have one? The forbes site used to have one but I think they killed the option. Thanks in advance.

  28. 28
    DrLink Says:

    just some monday morning BP oil humor

  29. 29
    elduque Says:

    TED spread still rising. Credit markets are more uneasy than stock market.

  30. 30
    zman Says:

    Re 28 – ouch.

  31. 31
    milepost_43 Says:

    TGA breaks $8……..

  32. 32
    TEXWS6 Says:

    What’s the deal with oil/gas prices? ECA stock is headed up.

  33. 33
    zman Says:

    TexW – big dive in the dollar


    Pushing crude up. NG is getting a boost from what looks like it may be the first storm of the year (still early to tell). They’re putting development choices at 60%.


  34. 34
    Geno Says:

    To things from the Florida coast. I friend has a condo that is getting cancelled weekly and BP said they would pay all cancellations and the Escambia School Board is filing suit for lost tax revenue.

  35. 35
    zman Says:

    V – you watching the dollar in here? About time we saw this.

  36. 36
    VTZ Says:

    Yeah I’m watching, although with the recent volatility I don’t think this move is really that significant. We’ve seen bigger moves to the upside and I recall intraday downswings this big as well.

    I don’t really see the cause for the change of heart.

  37. 37
    zman Says:

    I think it’s technical support on the part of the euro.

  38. 38
    VTZ Says:

    Yeah above 1.21 is for sure helping it.

  39. 39
    md Says:

    IS BP affected now more by escrow or tropicals

  40. 40
    zman Says:

    HK outperforming the gassy names on a percentage basis, continuation of last several days. Interesting but makes some sense since it has been such a dog (rightly or wrongly) year to date.

    Tex – have you seen much on the Collingwood shale, Michigan?

  41. 41
    zman Says:

    md – I think its the escrow talk but the tropical action is certainly the last think they need.

  42. 42
    Jerome Blank Says:

    BEXP $20 calls starting to perk up a bit, but only 4 days left to ripen….

  43. 43
    zman Says:

    JB – tell me about it. Hopefully they drop an ops update along with their presentation at Macquarie.

  44. 44
    zman Says:

    JB – Do your current thoughts on HK show it as severely overbought and in need of a pullback. Another TA guy is telling me it’s on its way up here but in need of one last sharp pullback in the very near term?

  45. 45
    Jerome Blank Says:

    Re: #44, HK is encountering resistance at the topside daily channel line now, as expected…in this case, I think the 30 min chart is helpful…HK gapped out above the intraday ascending triangle which we spotted on Friday, I would consider buying any pullback to the $20.80-$21.00 zone, this is a classic retest to be bought…macro context, P&F buy signal, in X’s, trendline resitance breakout…buy pullbacks to support

  46. 46
    zman Says:

    JB – thanks much.

  47. 47
    Jerome Blank Says:

    UNG reverses back into X’s…

  48. 48
    zman Says:

    Energy yield names moving again, WHX leading.

  49. 49
    md Says:

    is PBR on your list of consideration.

  50. 50
    zman Says:

    MD – I have started watching it again yes, made a comment last week that they are going to be getting some deals on rigs, maybe less of a need for newbuilds.

  51. 51
    md Says:

    You saw the news re $25BN share issue for upcoming July

  52. 52
    zman Says:

    No, have not looked through the news yet, I’ve got some work to do before I pull any trigger there. They will have an ongoing need for external capital for the next decade at least so am not surprised.

  53. 53
    zman Says:

    BP warning that the new plan to capture more oil comes with risk of ships colliding.

  54. 54
    guru Says:


    Do you have a detailed evaluation of EPS, Debt, CFPS and other metrics on ROSE? I did not find ROSE listed in your orange charts.

  55. 55
    zman Says:

    Guru – apologies, the reason you did not find it was because the small cap tab did not update. It is there now:


  56. 56
    guru Says:

    Z: #54. Update is much appreciated. How do you see Rose’s short term prospects?

  57. 57
    zman Says:

    FYI for you contract filers, tomorrow is Fed quarterly payment day.

  58. 58
    zman Says:

    Guru – pretty good, not outstanding. I think the stock has digested the run pretty well. 2Q release should have some more Eagle Ford data which will be welcomed by the Street but is probably not going to be break out worthy. Barron’s as usual was way behind here. I think you get very little in the way of new facts on the Alberta Bakken stuff. That’s more likely 3Q and I don’t know that they will have a horizontal completion by then or not which is what everyone wants. When you get that and if it is comparable to Williston Basin completions it will be the reason for a move over $30.

  59. 59
    guru Says:

    # 56: I meant to say relative to a very attractive name such as WLL in the small cap arena?

  60. 60
    zman Says:

    Guru – right, that’s what I was thinking with 58. ROSE is probably more Catalyst driven than WLL, WLL being the cheap name which just keeps on making good wells and has non-Bakken news that can really support growth (EOR projects that keep turning out better than expected results, not exciting but excellent to build a base on and good for reserve growth as well). WLL is still the cheap name. ROSE is the sort of sleeper play, BEXP is the fast car that you see coming and can’t believe the price tag but then it just surprises again and again.

  61. 61
    guru Says:

    Z: #60 is an excellent summary for the 3 names in the small cap area that I am interested in. I have shares of BEXP and was trying to decide between ROSE and WLL as core holdings in a stock portfolio. Thanks again.

  62. 62
    zman Says:

    Guru – ask away, summer is always this slow or slower so I’ve got lots of time.

  63. 63
    zman Says:

    S&P went to the middle of Nicky’s resistance range and fell back to 1,100. TED not nearly as happy as the equity markets today so I got an email from BOP saying this rally is to be sold in her opinion if TED doesn’t shape up.

  64. 64
    elduque Says:

    jb- any thoughts on gaps and HK in particular.

  65. 65
    guru Says:

    S&P is approaching its 200d mav of 1108 and may be pushed back from there. However, 5:1 adv/dec today shows a much broader advance. Also, with near zero interest rates, inflation at 1.5% and PE ratios at 13, isn’t the market very cheap on a historical basis? Further, with the US corporate cost cuts implemented in 2009 (7 mm layoff and inventories slashed to the bare bones), it seems that the profits in 2010/2011 may be pushed to record highs (even above 2007 levels). This doomsday talk emnating from Euro collapse does not make sense. Any comments?

  66. 66
    zman Says:

    House lawmakers issue letter to BP damning them for using risky practices. You’d think that would be positive for the subcontractors involved like HAL and RIG.

  67. 67
    ram Says:

    Heat is on in the South. That has to chew up excess gas.

  68. 68
    zman Says:

    Moody’s lowered Greece to junk status. Market pares gains. Greek junk a surprise to anyone???!!!

    Ram – yes, that 70 cooling degree day forecast is a well above normal and last year. Very hot in the South Atlantic and east and west south central regions. Just hot every well else.

  69. 69
    isleworth Says:

    Z- what is your current thinking on GMXR and its preferred?

  70. 70
    ram Says:

    BP should ignore Congress like members of Congress have ignored me when I damn them for passing laws that takes more money from me.

  71. 71
    zman Says:

    Isle – GMXR is a short cover waiting to happen but don’t have a timeline on that or an opinion on its preferred. There are other gassy names I prefer that don’t have such pie in the sky expectations one minute followed by “oops we forgot to hedge and are slashing out drilling budget” the next minute management teams.

  72. 72
    zman Says:

    Ram – I think this all for show. I honestly think they give BP an out if they push them to recover more oil in an imprudent manner, causing a bigger accident. BP is the biggest supplier of oil to the U.S. military and the U.S. has no quick way to replace that capacity from what I understand.

  73. 73
    isleworth Says:

    Thanks Z. It sure has been beaten up pretty good…..and now with gas looking like it may have some life, thought I’d relook at it. Their preferred yields over 10%.

  74. 74
    zman Says:

    Isle – will have another look there soon. Liking the idea of a bigger bounce for SD though.

    Surprised other majors, especially XOM not benefiting from a flow of funds away from BP. With pretty stable commodity prices and improve cracks, I may start to like that name over VLO (which I’m still not yet long).

  75. 75
    zman Says:

    BP and White House apparently in agreement over rough outline of Gulf Spill Fund:


  76. 76
    AAA Says:

    I have been pretty critical of BP, but they are now getting into a can’t win situation, what with calls for enormous escrow funds, etc. It reminds me of what happens when a republican official, eg Trent Lott, puts his foot in his mouth. They can never apologize enough to satsify the braying lynch mob. BP finds itself in this situation, and will have to make some tough decisions in the upcoming few days. Obama and the democrats will keep upping the ante with their demands until they are told “no.” Their objective is more being able to demonize BP and scoring political points than getting any real relief.

    If I were running BP, I would reject any and all calls for escrows, etc. Let the legal process run its course, which I realize is a new concept for this administration. Frankly, BP has to start thinking about playing some legal hardball if they want to survive this as a company.

  77. 77
    elduque Says:

    re SD- is there a level where you buy it?

  78. 78
    zman Says:

    AAA – yep.

    Eld – I’m waiting to see if they get ARD. At that point, there should be plenty of time to buy as it’s so beaten down.

  79. 79
    elduque Says:

    In other words. With ARD you think it is worth at least 7.5 to 8.

  80. 80
    zman Says:

    re 79, higher.

    This market continues to be an oddball one. Very different start to finish the last few days. Volumes are unimpressive.

  81. 81
    elduque Says:

    so without ARD, is it value at this level, providing NG doesn’t slip below $4.

  82. 82
    zman Says:

    Probably but if the deals fall through there will/should be plenty of punters.

  83. 83
    Nicky Says:

    Afternoon all. wave iv pullback underway….could go as low as 1080…

  84. 84
    zman Says:

    Thanks Nicky. Hard to believe the market turns on more Greek stuff.

  85. 85
    elduque Says:

    If you look at the TED spread, it is telling you that there is more going on than Greece. The Debt levels are just too high, everywhere.

  86. 86
    elduque Says:

    I should have added that there is no way to grow out of it. Corporations can take on more debt and grow, doesn’t work for gov’ts, especially when there is no job creation.

  87. 87
    zman Says:

    Interesting attempt at a re-rally, will have a pretty detailed WIOWIO tomorrow.

    42 year old friend a quintuple bypass surgery today. Morale seems to be go out and exercise. Nothing happening now so I am going for a swim.

  88. 88
    elijahwc Says:

    IN the politics makes for strange befellows catagory, Gov Ed (Dem)is telling you that it will be full speed ahead in the Marcellus Shale.

    “Glenn Williams: PA is Considering Taxing Marcellus 6/14/2010 1:30 PM EDT

    They call it an “extraction tax” on methane. AP is reporting this tax may become a reality. They report the tax would be part of a compromise where the gas industry would gain some new legal rights.

    Tax legislation is in the early stages and the industry wish list has not been introduced as part of any bill. Nevertheless, two of the gas industry’s issues could be controversial.

    One would outlaw municipal zoning to prevent the collection of gas from below the property of someone who wishes to sell it. The other would allow the state to force holdout landowners into a pool with neighbors who wish to sell their mineral rights in a block to a drilling company.

  89. 89
    Jerome Blank Says:

    #64, eld…HK the resistance retest on the 30 min gap is right here at $20.80 to $21…if it starts to trade down into this zone, dial down to the 5 min for an entry point if looking for a long

  90. 90
    Popeye Says:

    SSN recovering nicely today.

  91. 91
    zman Says:

    OK, still haven’t quite checked out yet. NG up 5.25%, up 25 cents at $5.03. Stocks really not paying much attention but a move over $5 on the front month, with the strip already there is fairly bold. Should get some notice:


    Probable reasoning on the late day move higher in natural gas is that they now have storm tracks on 92L however the potential for development has been dropped from 60% to 40%.


  92. 92
    zman Says:

    Popeye, yeah, I think their clarification today was well received. I thought they were talking nonsense last week but this makes more sense. They are also calling the latest well a discovery but have not yet completed it. So look for constant updates from them here. On a day like today, this kind of stock often gets ignored as the others move about. AEZ also acting pretty well.

  93. 93
    zman Says:


  94. 94
    mimster90 Says:

    JB – voted

  95. 95
    Jerome Blank Says:

    RE: #94 mimster, thank you…

  96. 96
    zman Says:

    Short speech from the president. Very little new. Push for clean energy and no mention of natural gas. Classic. Will have comments in the post.

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