Will they mark a new leg up or just a quick reversal that hot money will sell into? I am (for now) betting on the latter. And if I am wrong, then one can always pay up (buy higher), giving up some gains along the way.... as a real trend will last for a long while.
I heard a striking fact this morning - the last time XTO Energy (XTO) traded at these levels crude was in the $70s and natural gas was in the $6s. The former is now in the $120s and the latter in the $9s. But the stock price is the same. So... either the hot money has been "delevered" as we spoke about yesterday, and needs to sell at any price and this is the buy of the century... or the stock prices are signaling further moves down in the commodities. I don't have a clue. It really doesn't matter why - it just matters that the stocks are being trashed. I have no problem cutting back, watching for technical action to give a more clear signal and then making decisions later when the path is more clear ....even if I give up gains along the way.
Now, unlike the hedgies, I actually discern among the commodities - for example fertilizer I am a lot more bullish on then potentially crude which I believe has been run up by speculation and I was calling toppy a month back. [Jun 26: Can a Top in Oil Be Far Away?] But unfortunately there is no discerning among hot money so when hot money sells, it all breaks down. And the charts for many things in this space are breaking, regardless of fundamentals. Great earnings are being ignored. Etc. So it's prudent to build cash, take some shelter and re-assess when things become more clear. Right now the movement of "hot money" is forcing my hand... again, we are just gnats on their behind.
One candidate to cull is EOG Resources (EOG), one of our natural gas stocks - it has broken below its 200 day moving average and is now bouncing back up to right below. Again, this could be "the bottom", I don't know nor do I really care. If it is the bottom, then this will just be leg 1 of a new recovery bounce and there will be plenty of money to be made - even if you buy higher. For now I want to reduce risk and with "only" a $1000 loss here will take more of our crumbs off the table and re-assess. Fundamentals mean zilch right now so even though this is one of those names with fantastic fundamentals, it means nothing at this point.
I'm selling EOG in the $105s; this was a 1.1% position. Right now everything in this space is just a technical trade - so I'm treating them as such.
Another is Encore Acquisition (EAC) which we are going to take a $2000 loss here selling in the $60.80s. It has broken its 50 day moving average and its 200 day moving average is far below. This was a 1.2% stake.
I have no problem buying both these back at higher prices when/if this group falls back into favor. For now I need to protect capital and not worry about appreciation as much. Hence these moves; these are relatively minor losses in the big picture although we lost some unrealized gains along the way as well.Long XTO Energy in fund; no personal position
9 comments:
Did you cut any fertilizers,especially MOS?
looks like in a bad technical condition.
Yes.
XLE looks like going to 77 or 78...
People (from realoney.com)shorting coal got killed today.
R Marcin has been shorting coal for 12 months saying its overvalued
Every squirrel eventually finds a nut
Sort of like "buy the financials" crowd since last summer. They get it "right" once every 12 weeks.
I am worried about the chart action though in the near term. Nice to see some bounce but they've got a long way to go before becoming constructive.
Sad to see fundamentals mean very little.
Mark,
In my opinion, cutting back on the natgas plays is a wise idea. Lots of speculative money and downside risk until the commodity REALLY makes a bottom. I haven't seen it make one yet...
The fert/coal are alittle more of a wild card. Yes, they may get dragged down a bit more, but I really think the correlation between Oil->UNG/Coal->Fert will weaken as the fundamentals play out through earnings.
Can China really switch from coal to natgas if the price of natgas drops? I don't think so...
well we're finding so much gas we technically could export it as liquid nat gas, but i doubt that will be allowed bc we have an energy crisis and this country shall never export energy or any nat resource
but nat gas is a local market entirely and china barely has any nat gas infrastructure, they cannot switch to it
just putting my 2 cents in from working for a utility
nat gas did have a ceiling though...bc at 16-17 UK would export to usa
Mike,
Unfortunately - you, like I, use logic. Hedge fund supercomputers do not. Don't you realize that natural gas = crude oil = potash? Once you learn that one minor thing, the prospects will become much more clear :)
I say that only with a little sarcasm. It is really that simple right now.
When the markets reward companies that are smashing their earnings I'll become more bullish. I've turned neutral on this group until logic returns ... check the Peabody Energy video from CEO this week on CNBC - even the CEO says the price of his stock is hedge funds moving in and out. hah. Another reader to the blog ;)
The funds tend to push these stocks to extremes (either too high or too low), to the point where the fundamentals seem to not matter. I like the fundamentals of natural gas, but there's no hurry right now.
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