Low Drama...

A pick up in volume, doesn't always translate into wicked action.    Today was one of those days where the volume seems heavier than average, but the stock action is overwhelmingly boring.    Of course, if you are heavy into the financial stuff, you actually may have had a couple of wild days in a row.     For those of us who are following the commodity plays, beta plays, today was not the day to get busy.    Basically, as we pointed out a couple of days ago, we have gone into cash mode to wait for entry.     Until this market gives us either some better action or better opportunity, we will be staying mostly put.   Lets run down a few sectors here for the heck of it...

Beta stocks, these include RIMM V AAPL MA GOOG SOHU..., other than SOHU (a nch today), everything seems to be in a consolidation phase here.    We want to make sure this market is able to hold the recent downside momentum.    There's really no point buying beta stocks now if this market takes another leg down off any potential bad news from the financial sector.    Playing this group is actually easier than the commodity group because all you have to do is to follow the main indices.

Coal, out of all of the commodity groups, this the group that's first on our buy list when it comes into range.    Lets face it, ever since the group's break out in the beginning of May, the group hasn't really had any pullback.    Right now, we'd be concentrating on PCX and ANR mostly but others like MEE, FDG, JRCC... can all fit into the profile.   So, it's a matter of personal taste in this case when the time comes again.

Steel, we have to admit, this group did have quite a run so far so extended consolidation is understandable.    We aren't sure how much more juice this group has left if another breakout takes place so we'll take other things into consideration when it happens. 

Oil, the ones that are discovering or proving more reserves are definitely faring better than others.    PVA CLR GDP types are holding much better than the rest of the oil sector.    If crude oil reverses the recent slide, we'd like to trade these more.    Believe it or not, even though crude price has dropped nicely the last few days,  we are still above $120/barrel!!

Agri-chem, this group is back onto the radar and a couple of them are nearing highs again.   This maybe the first commodity sector to turn to when a commodity reversal is evident.   Right now, we are only looking at some of the well known names from the past such as POT MOS CMP MON..

Solars, we just like to avoid this group at this point especially when FSLR is out there skiing in the Alpine.  After last Fridays gap this group has done very little with the German subsidy rumor.  As we said, we didn't chase the gap or look to buy until the news comes to fruition or something else fuels this group.

Yes, we know market action is kind of slowing down, so we have to be more prudent when it comes to choosing plays and their setups.   Bottom line, we'd rather miss an "opportunity" than getting into a potentially dangerous setup.   After today's data, the Friday's employment number may not be enough to give Bulls or Bears any leverage, instead we may get a play intraday on Thursday if the Financials don't cause more havoc.  The $CRX has fallen to the 50ema quickly (980 to 943 this week), we'd love to see it slip some more and after do an intraday reversal to spell a short term end to the downside.

Secrets of trading revealed!

SSSShhhhhh...don't tell, okay?.  We're working on the home version to get out on the market before Xmas.  What is it?.  Maybe you've figured it out by now, why else would you guys still be here!.     Well, we could all do it this weekend and we could all add to crazy U.S buyer who just doesn't know how to quit and stay out of the mall,  off the streets according to the retail numbers.   It's simple...get the board game of 'Wheel of Fortune' and tape over the spinning wheel and its individual dollar values with commodity stocks off DJIM's shadowlist.   Replace the $500 with POT, the $1000 with X...etc..you get the drift!.    Yep, that's the secret and all you have to do is keep track of the $CRX before you close eyes and spin away!.    Of course, it would also help if you read the DJIM Journal and pick up on things we are watching for or anticipating wishfully such as in yesterday's final paragraph.     All week we were anticipating not doing much before the employment report, but that all changed due to some precursor data to the report and so we said."..instead we may get a intraday play on Thursday..".  Add to this the idea of traders fascination with 9ema, 50 ema and you needed to understand the cliff diving $CRX was at its 50ema and needed to be watched closely..." The $CRX has fallen to the 50ema quickly (980 to 943 this week), we'd love to see it slip some more and after do an intraday reversal to spell a short term end to the downside.".     Simply, we just try to lead by giving our perspectives, our thought process to the next trade in the Journal and if you only want to live off our alerts, you're missing the purpose of DJIM.    To us it's a Diary and even we go back and read our stuff so we don't stray from we were or are feeling and doing.    Call it a bunch of 'post it' notes to self.    Anyways, we just had the biggest rally in over 2 months with anything from the Retail to the ECB comments to $ strength to initial claims to an Obama rally or is it really just Hilary finally giving up as the reasons.    Who knows, who cares!.    What matters is these ducks lined up and mother duck $CRX was sitting on 50 ema and the belief employment numbers may only surprise to the good side.   Interestingly, a surprisingly very good report may now get the reaction we don't want and the market will sell off due to noise of what the FED will do next.  Be careful if you left profits on the table, it never hurts.

We'll leave stock specifics to the weekend edition of our Journal after we monitor today's action and get a clearer picture of what the rally really means to the market for the days ahead.    For now, we're on the hunt for ice to get through what will be a scorching hot weekend by the lake over here. 

If you click on the shadowlist and change screener setting to new highs, you'll see about 8 off our list.  We'll update the link over the weekend, but it's pretty obvious the only names that should be added are the shale plays to go with PVA...HK, GDP 

Have a good one, all

DJIM #23 2008

Lets just say the past week ended in a pretty gruesome fashion.     When both the economic worry and surge of crude oil hit you in the heart, pocketbook there's really no chance this market can be bullish in anyway.     In any case, this market might have just over reacted a bit over the Friday's news.   As traders looked to a modest job losses number, the attention turned to he unemployment rate which jumped quite a bit.  There is two arguments to this as expected.   We think it's an aberration, reminiscent of the ISM plunge in February to 41+. The market overacted in regards to the employment situation, the big picture here is the job losses are holding up.    As far as oil price jumping over $10, that should not come as a surprise because we all pretty well agree it's going higher.   Simply, we think the market has underestimated the rising risks to crude oil demand.

Is this market in trouble?   If you look at the technical, we are really just a couple of days away from the March low, as far as DJIA is concerned.  However, both QQQQ and IWM are still far off the March low.   So in another words, the broad market isn't in as big of a trouble as the Dow suggests.    Of course, if you look at many plays on DJIM shadow list, it really wasn't until the last trading hour on Friday that some of the plays just gave up some gains due to the overall pressure and natural profit taking.     We think last Friday is more than likely a one time event.    Adjusting to high oil price isn't going to be done with one day and the volume isn't suggesting any sort of panic.    We have mentioned before that the likelihood of sustained high oil price is pretty high and the market will have to learn to deal with it.    In fact, there's an article in this weekend's Barron's that talked about the oil situation.    The same analyst who called the $150 oil price a few weeks ago from Goldman is seeing the peak price of oil between $150 to $200.    The one point he remained unclear though, is that how long the high oil price will stay with us.   

For DJIM, the focus on oil these days is very good for us.    The more media and analysts talk about the surge in oil price, it probably means more commodity plays will benefit as well.   Coals were upgraded again on Friday.   At this point, we have come to realization that some of our plays, including the coals may not give us a good pullback we had hoped for.    What we hope now instead is that some of our plays slow down so we can simply catch some on a pause.    We added a new play IPHS on Friday and we have noted that it held up extremely well despite the weakness of this market.    We are looking to add more in the coming week if it stays this strong.

Besides the Oil, spotlight will be on LEH this week to see how much they cut their leverage and what losses they'll report.  It won't be rosy, but if they throw out the kitchen sink finally, it 'may' help the financials in days to come.   In a low volume environment as we have now, we have the same ability to take a run to the upside just as quick.  Be prepared early in the week, if a turn comes it will likely be a pretty good one.  We definitely think volatile days not seen since early in the year are back for the short term.

The Haynesville Shale play is not going away.   PVA was only the first to release results and the market has responded very well.  Many more will and this will idea will remain in play as results will be catalysts.   So as solars, shippers etc, we think the shelf life on this play will continue and DJIM will be all around it.       HK, GDP, XCO, GMXR are the other operators in the area we like.

DJIM #24 2008

Another week of the market being held hostage by Oil and the Financials/ Brokerages has passed.  But, heading into this trading week we're possibly in a position to see a 'change of pace' this week as GS and others in their group report, while Oil is on the verge of doing something from a technical analysis position ( forming a pennant formation).   Hopefully, these dynamics can make the market move in either direction just to give some clarity.   The only positive to possibly takeaway from last week for the overall market was that Fridays move didn't fizzle out like every other move during the week.   We're not overly excited about the action, we were more excited by the continued strength of our heavily followed as at least 8 put in New highs.   Of course, this consists of Coals ( ANR PCX MEE JRCC ), Ag-Chem ( IPHS MOS) and those Oil Shale plays like GDP.   The theme heading into this trading week remains the same from last week..."When we are trading, we are sticking to those favorite Ag-chems and Coal and our Haynesville Oil Shale stocks,.."'

We've updated the Shadowlist and have included the GMXR XCO Shale plays noted before, while removing the Shippers and China stocks to a secondary list for now.

A few have asked why we follow the $CRX and not the CRB index.  The reason is the Morgan Stanley consists of individual stocks with some of our favorites being the 2 largest positions POT 6.7%, X 6.55%, while the CRB uses a 4- tiered approach to allocating among commodities included in the index.  Group 1 includes only petroleum products with Crude Oil having a 23% index weigh.   We simply find the $CRX a better measure as it's based on shares of widely held and therefore seems to give a better insight to intraday activity of where our stocks may go.

As long as our groups show leadership in an uncertain market, we won't stray...unless it's to bet on Tiger Woods today.

..Doom and Gloom, yet Bloom

Same headlines, same story, same action, same end results!   Lots of doom and gloom for the market, yet our commodities plays bloom.   Morgan Stanley's earning pooped the financial market,  FDX cited US sluggish demand ahead,  RBS issued a global stock & credit crash with SPX falling to 1050 by September, all weighted on the market dipping the DJIA momentarily below 12000.    On the other hand, commodity sectors finished another cheery day and many of our plays notched a new closing high.    You either love it or hate it, these days!      For those that have viewed commodity market as nothing but a hedge have been missing out on the fun.    We have been often approached by friends and relatives who claim the "hedge" in their portfolio has been working well and thank god for them they are having a not so bad year.    The "hedge" they refer to is the kind of stuff that makes up DJIM's shadowlist.     To us, why hedge?   The commodity sectors, which may not be the traditional core holding of a portfolio, is going through a run-up of a lifetime and you simply wanted to just use it as a hedge, we ask?  Why?   Maybe, this is what separates a professional trader from an "educated" investor.    Instead of investing "into" the future, we traders simply try to take advantage of the current demand and supply imbalance.

Oh yes, our DJIM leaders had another great day with 22 hitting new highs, some closes were unbelievable PCX ANR.

A few firm notes of note Wednesday....talking about coming late to a party..but, maybe not as we said the other day, "It's better late than never".

Coals,  Stifel raised estimates for coal expectations of US coal miners, MEE raised to $123 from 73 was included.

Shales, XCO, raised to $40 by Keybanc is one of the top 3 Shale plays in our book due to acreage in area.  It is also probably the safest longer term hold if you want one.   This is due to its bigger size of outstanding shares which provides less volatility than the GDP, GMXR, HX may. PVA GDP, GMXR all raised by Jefferies to low $80's, HK to $49.  We already alerted BMO price ratings on Tuesday, we only signal up's/downgrades we think may be significant to days action as we've noted before.   As you can see by the above, Shale noise is just starting as commercial development is inevitable based on results so far.

Steels, the earnings report outlook from CMC, we think bodes well for US steel producers ( X )to produce record EPS going forward.

Again, watch $CRX as indicator here intraday direction.  Also, if selling starts at any point this week watch for 955 to hold to avoid any further down action. 

Cheers,

De-risking of Haynesville Shale play

In late March, Chesapeake CHK said that it believes the Haynesville Shale Play could potentially have a larger impact on the company than any other play in which it has participated to date.  It added the plays economics would rival the Barnett Shale play as the wells in play are capable of producing 5+ Bcfe for $5-6MM putting the acreage at a potential worth of $40,000/acre.  The comparisons to Barnett are/were no small feat and very bullish,  CHK had it's flag planted and interest spread to those who have well flags up in the Haynesville area.

As for traders here,  we said to watch for further catalysts off results of those companies with flags in area.   The results are pouring in and they have moved these stocks fast.   What you should be watching for is the above results 5+ Bcf which would suggest $40k/acre when viewing news releases of these stocks.   These are not vertical results that you may see in results of some releases such as GDP yesterday.  The more companies producing these results simply DE-RISKS the Haynesville Shale play (HSP) into a 'Commercial viable development'!.   The more positive exploration results the more de-risking of acreage in area occurs.   The acreage between Elm Grove and East Carthage is potentially worth 10-50k/acre and until a few weeks ago the stocks in this area had virtually none of this value in them, but since we alerted PVA May 30th in the $59 off exploration results,  we've seen this value go into many of the stocks GDP, XCO, GMXR, CRK, HK that have wells within 15 miles of CHK producing wells and even further away.  We noted all these stocks all around DJIM, including Forum June 2nd.   GMXR, PVA have data points further west away from CHK`s current activity and this suggests that the play is continuous to an area of 30 miles!.  Even HK`s wells suggest the play runs 30 miles east and 15-20 miles south, but the play may be limited to the north as results 25 miles were not so great.  So that pretty well draws you a map and if you see other stocks being pumped as a HSP, you`d better know where their flags are.  

Here are the stocks with best exposure numbers to CHK wells , others like EOG have 0 exposure within 15miles, while 150k outside and others with good exposure like DVN are not fit for our trading crtieria.

                                      Net acreage within 15miles -6 county acreage=  Total

GDP                                18,700- 47,000= 65,700= 281$MM value

XCO                                34,000- 120,000= 154,000=580$MM value

GMXR                              8,000-  13,000= 21,000=132,000$MM value

CRK                                15,000- 80,000= 95,000= 310,000$MM value

PVA                                 12,000-39,000= 51,000= 276,000$MM value

HK                                   40,000- 25,000= 65,000= 500,000$MM value

_______________________________________________________________

CHK                                  75,000-125,000=200,000= 1,250$MM value

These assumptions are for $10k acre (price which acreage is being bought by CHK in area)value near CHK and at 2-4k for other acreage further away.  To get a further value such as value share you need to know the share count.  This is where we all need to look as far as trading is concerned.  GMXR has a share count of around 15m while an XCO has over 100m and CHK over 480m.  Simply this is where volatility and quickest price appreciation potential comes from.   We prefer to trade the 26m of GDP than the 480m of CHK.  XCO fits nicely in between if you want to put one away under a pillow based on share count and exposure to HSP.

Basically, this is to let you know what you are looking for as these stocks will move on catalysts such as acreage acquisition, you need to know how much is significant and where it is to CHK best flags.  You can now do this by comparing to the above stats.   Just like when we alerted GMXR June 17th had bought more acreage to add to the above acreage, more will come as yesterday did with GDP and the ensuing run.  GDP got a small amount of acreage, but a surprisingly great price of $1,147K-acre.   This is only because they are covering the capital on the 1st well from a private company they are partnering with here.   It does not de-value the HSP acreage paid by CHK and others.   You also know what is a good result and what will be a bad one to make a trading decision.   This is all about de-risking this HSP play.   If some result within 15 miles of CHK doesnt meet the +5 BCFE now expected, which is the ideal number,  than you know the whole HSP players will suffer. 

As we always say, it is best to be ahead of the herd and dump unto them when they come.  This is from a trading perspective and it has been happening since we took on this play at the end of June.   This will continue and the potential is great as there are not a lot of shares available in the float of a GMXR, GDP etc. for the institutions that will want to be in HSP.    We noted recently when a money manager came on CNBC and said well you heard it here first in regards to HSP, since Jefferies'  Hogan has pumped our plays and Erin Burnett is counting the times HSP comes up.   Simply, despite this tremendous run in just over 3 weeks this has potential to be on many more radars as time goes on as this play gets de-risked for commercial development.

As far the rest of the market,   it was a disappointment again as no buying came in after Fridays dump.   Not a good sign as the market continues to show vulnerability.   Today will be no different as UPS gave the market another kick with the magnitude of their 2Q downside.  But again, all this is happening in our neighbours backyard, our DJIM yard had at least 13 stocks from our shadowlist making new highs with many of our most recent alerts such as X SCHN ENER having incredible days.  We also had very positive news late for US carbon steels producers CLF, X as Rio Tinto announced it had achieved a 96.5% increase just for iron ore lumps.   Expect more EPS/price increases in days ahead for these, we already told you of one not publically released for X the other day.

holiday spirit

Walking around town in this fine city of Toronto this week, there's no hint of a slowed economy.   Of course, we are talking about a big holiday week here where most people try to enjoy themselves.      When we walk away from our trading screen, and out on the street, we really don't feel the kind of gloom and doom this market fears.  Maybe that's because the major Canadian exchange (TSX) has been up around 20% in 2008, one of the world's best performers.  Why?.  Well, that's because the index is about 50% resource plays!.  So, Happy Canada Day, today.  Hopefully, our resource plays can survive today with the TSX closed today.;).   There's no hint of inflation, no stress and everyone just goes about his/her business it seems.    This is definitely a strange feeling, for us traders who witness all the daily doom and gloom reporting !    When we get back to work and look at the quotes of many companies that supposedly represent the pillars of the economy across the border, things can be so far from the truth.    Companies that are perceived as "American Icons", such as GE, GM, Citi..., their stocks are hitting new low on a "daily" basis!    On the other hand, there are those companies that do nothing but dig stuff out of the ground, are hitting new high on a daily basis.   Even US coal companies are popping IPO's onto the TSX here, one PHC, Phoenix coal just had a 18% pop going from 1.76 to over $2 yesterday.   Ok, the comparison ends here and no more philosophical discussion on how and why or if...

What we want to know, as traders, are questions of when is the overall market going to rebound and when is the madness of the commodity plays going to end?    Either question, if you attempt to answer this in some sort of logical way during the last couple of months, you'd have simply driven yourself insane by now.    We feel the questions are best answered by the market itself, whenever they happen! 

In the mean time, today's strength from DJIM shadowlist came from HK's rosy drill report.  We've highlighted these intertwined HSP plays, GDP, CRK, PVA, XCO will live off 'catalysts' such as results, acreage acquisition etc.   This could not have been more true than yesterday as these plays exploded.    HK provided very strong results, the initial rate is the highest rate so far of 16.8 mmcfpd.   It is twice the rate of those recently announced by ECA, PVA and an average of 5 Bcf per well can easily be assumed based on this.   They also announced acreage increased 83% from 150 to 275K net acres.

We noted before the open of possible catalysts for our resource plays.  We had a timely upgrade of CLF, and continued follow through action from coal plays including JRCC, also highlighted.    In essence, resource plays have covered about 90% of our most recent favourite trades.    Yes,  it'd be hard not to have a great day, even 20 minutes into the open.    Excitement aside, we still have to do enough profit taking to ensure that our hard work get recognized.    Also, we wouldn't want to call today's action a gift either because we'd been riding this for quite sometimes now.    The probability of an upgrade in the steel sector to estimates and stocks themselves, a turn in coal sector and positive catalysts from shale plays have all been discussed extensively in the Journals.  Don't shoot the messengers,  if sooner than later these pause, money should have been made already.  To start, it will be interesting to see the reaction to SCHN's eps today in the entire steel sector.  Will the probably great numbers be cooked in or not, that is the question!!.  Wait and see, here this morning.