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DJIMSTOCKS- since 2006 - Toronto, Canada/ London UK

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Entries in GMXR (4)


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. 



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.