Big 15..

Today's the kind of day which you can just sit back and relax.   Ok, maybe it's just a little wishful thinking here as traders hardly ever relax.   The truth is, there is not a lot of news headline today and market behaved with very low volatility.    We like this!   Why?  We just can't help but noticing that whenever market is low on volatility, our playlist is almost always high on greens.  Just check out the "BIG 15" from yesterday making new highs off our Shadowlist.   Go to Shadowlist link and change signal box to new high.

With the turmoil in financial stocks and this being a supposedly "tough" trading year, how often do you get asked by friends/relatives that if you are doing well with your portfolio?    Instead of a straight answer, we simply tell them that we've been trading the commodity stocks, which is the same reply a month ago, two months ago, and three months ago and the lead into 2008.

As you can see, this game still rewards the mentality of "it's better late than never"!    However, if you are stubborn enough to refuse to accept this fact, then a lot is being missed out on the table.     Sure, playing some commodity now definitely does NOT give you the same kind of risk/reward ratio compared to a months or two ago.    It just doesn't mean it won't give you any reward.    In fact, we like to trade stuff with the greatest visibility.     If a stock has great earning report, it gives us good visibility that it may do so again in next quarter.   This view/strategy is shared by so many and that's the reason why we have had so much success with the earnings winners in the past.     For this year, the visibility isn't with earnings plays because a lot of uncertainty within our economy is bringing a very murky picture on what lies ahead.     What is clear though is that commodity prices are increasing and at a pace we've never dealt with before.    This is just the beauty of trading world.    If we can all foresee the high energy prices a year ago, we all should be billionaires by now.    Nope, it doesn't work that way.     We have to constantly evaluate the situation and be prepared for surprises and the "unthinkable"!

Many commodity plays on our shadowlist are slowly grinding higher.    Some of you may already got uncomfortable playing some prices knowing that you were playing these at a much lower level just few weeks ago.    We say, don't ever let that mentality get into your head because that'll hurt you from making good trading judgements down the road.     Basically, trading POT at $230 is no different than trading POT at $150, as long as you are aware what the trend is and you are trading WITH the trend.    Sure, you may not want to commit the same size when the stock moves higher and that's just fine.  Maybe PCX and ANR seemed expensive in the $50's just weeks ago after introduction here, hopefully this finally confirms quality is better than the quantity of shares in $5-10 stocks.    We haven't done any major updates to our shadowlist and it may be "boring" to look at the same plays every day if your not participating.   The point is, you have to absolutely stick with what's working currently. Anyways, the most recent plays we introduced are doing great.   The Shale Gas plays and IPHS come to mind.   Even as a lousy trader, you just can't lose over a period of time with the right kind of plays.  In some cases, a DJIM investor with a longer term perspective may be doing better than a DJIM trader so far in 2008.     The past couple of years, the reason why our plays changed so quickly is the fact many if not most of those plays are "small caps earning winners" based and we know how fast flavour was changing from one to another.     This year, we are going through an unprecedented run-up in commodity prices and we simply don't want to be anywhere else, focus and/ or money wise.

"Shale Plays" got a kick start this week as the news from GDP/CHK just spread across the zone.   Also, ECA has stuck their behemoth hand into Haynesville with a boatload of acreage.  The potential for the smaller caps names noted here, is of course the better trade as far as potential percentage gains than huge ECA.  There is only about 60mln float between GMXR, PVA, GDP.   We are in a few of these Shale plays and we'd intend to add on weakness.   

Agri. plays are still working and our little IPHS has gone from $28 alert to notch another nch and the action has simply been spectacular.    There's a possibility that the IPHS is in imminent need of a pullback and we'd get on the bids aggressively when it comes.    

Coals, what more can be said?    NCH's all over the joint.

A couple of beaten down groups (Ships and Solars) also made a little advance today and we are looking at some solar plays for potential intraday action tomorrow.    ENER, a name we switched to in mid- May as far as Solars were concerned, is basically trading in the world of its own and it's on pace to become the baby FSLR.   We highlighted this a while ago as one of our favourite Solar plays and it's apparent that this one is emerging to be the "real deal"!   We are hoping to catch it again on a break , well any break really.

Bottom line, GS is reporting tomorrow and lets hope it's another none event.   Seriously, enough damage has been done in the financial sector and lets cross our fingers for some good news from this sector.  

..what the world needs now....

..is some SHALE and POT!!.   Okay and some COAL, if you wanna get down and dirty.   This market can be just as depressing as the Barclays commercial played on CNBC,  if you're not in the right places.   Visit site to see.   A meandering, yet slowly spiraling market with sights on testing early year lows can make for a downer unless sooner or later you begin to participate, hopefully all DJIM members have gotten it or else why would you still be here.   We're glad to see posts like yesterdays in the forum and the emails we receive to let us know we're not doing this all for not.   As far as this market,  it is to the point where we are oblivious to the major indices as it has almost nothing to do with where we are.  Yesterday, the market should have been just happy enough to go green after GS didn't toss out a bombshell,  it was almost a non-event which should have done something positive for the market.    Maybe after the LEH re-org, GS, more reports is what is needed.   GS didn't seem to be enough.   Instead of a happy market,  we got barely over Mondays highs (SPX) before a steady slide that went a little to deep.   Maybe expiration week can provide a move before, either way..honestly!.  Just give some clarity to all those trading, investing elsewhere.   Elsewhere as in places other than the commodities!.  Excluding the ETF's in our shadowlist used for guidance, we were at 21 stocks making new highs which is about 50% of the stocks listed.   Doubt this can go much higher, so maybe we soon we get a pullback to saddle back up.   As of now, we just go back and forth between names as traders depending on which look best at the time.    Those not trading full-time should be doing just fine holding overnight recently their favorites in each sector say.   Anyways, don't have much to add as we've given all the clarity we could recently.  As said in forum yesterday, you don't need to be heavily invested, just selective  always remembering to  pocket profits.  Opportunities will not go away as we go forward.  Money needs to flow somewhere. 

..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,

..dirty 4 letter word..

You gotta like it when CNBC is highlighting DJIM stuff months later as "coal is cool" this morning.   As for yesterday's action, it was really no surprise that coal had a pullback.   It was inevitable after this recent kick up.   The dirty 4 letter word CNBC is using this morning is coal and it ain't going away as long as crude is on the mind this year.    Didn't we just say if you really want to get down and dirty have some coal?.   Actually, it was around these parts months earlier as you know.   Considering, we profiled coal as possibly the next big trading thing in early February, we welcome any pullback after seeing many introduced here double and triple since.   We've been selective in choosing a few, JRCC has gone from $14 to 50's, FDG, MEE have run nicely and we discovered PCX and ANR in the $50's.    Again, don't fret the action Thursday, just get ready to saddle back up one day soon, but don't do it guessing a bottom unless you are a full-time trader and can move around intraday.   We noted yesterday at 10am with $CRX at 976 a stall may occur for profit taking.   Well, it did as the $CRX fell to 961 by close.   Watch 955 as an level of interest noted yesterday to either bounce or exit.   Remember, we can't say sell or buy for that matter for obvious reasons..we can only lead and say what is on mind.    If you're trading these day by day, you may have used the alert to exit a few names in the commodity area and go clean into the weekend.   But,  if you've been holding a few for weeks it's no really big deal as you've generated nice gains.  

Anyways, a lot of noise this morning in the markets and it's time to start the weekend.   We noted a few stocks we're in yesterday. ENER and SCHN because steels held ground yesterday

We will do an in depth write up on the Haynesville Shale play we introduced recently this weekend.   There are more than a few plays and you'll have to decipher which fills your needs best as there ones to trade and some you may want to just tuck under your pillow.   As with coal this play ain't going away and in months they'll be saying Shale is dirty 5 letter word.    

Have a good weekend.... Anybody watching and enjoying Euro Cup soccer?....it's so much better than watching the market take its kicks!

DJIM #25, 2008

Summer has just officially begun in North America and things are seemingly heating up for the next few months.    For some reason, we have this feeling that this is not going to be a relaxing summer for many traders.    Of course, there's always two sides to every coin and it all depends on your trading strategy, you can be either be stressed or relieved as we go forward.     Market as a whole, is not doing too good lately as we all can see.   Oil and Financials continue to rule the market on a daily basis.   Nasdaq is in danger of breaching it's recent lows while Dow is headed for primary support at 11750.    SPX, is also much closer to its year low than the year high with it's primary support at about 1270.    We are literally at a point where many market participants have to ask themselves, "what are we really fighting for?"

Much of the market turmoil is being blamed on the financial sector and its credit squeeze and this is perhaps the most troubling side of this market.    If our capital market fails, nothing else really matters.    Well, what's happening out there is not the case that the system is failing, it's just the fact people do no have any faith in the recovery of the financial sectors.    Right now, no one can  intelligently give a reasonable time frame of how much longer the financial sector will suffer.   P/E and valuation is currently useless when the confidence level is so low towards these financial companies.    In hindsight,  some of these financial will probably make a great investment in the long term.    However, at the present time, you'd be thrown out of your office if your investors find out you are still holding/buying these troubling stocks as a money manager.     To DJIM, the process of gaining faith and confidence in the financial market takes time and unfortunately we do no have the insight knowledge nor time and capital to wait it out.   So, we pretty much leave everything and anything that have to do with the financial market alone.

For some of us who have started trading in the 90s, we really haven't dealt with an inflationary induced stock market.    Also, the world isn't the same now compared to the 70s or 80s.     You can draw parallels only to a certain extent between different periods and the rest is new and unfamiliar to us.     The energy crisis now is definitely different from the energy crisis in the 70s.    The inflation worry now is also different from the inflationary period in the late 80s.    The major difference, in our opinion, is that the crisis we are going through now is more of a world problem, as opposed to the problem for the western countries.     China and India and many other developing countries didn't  matter in the world economy 20 or 30 years ago.    Nowadays, they are probably the very reason we are entering a high energy price era.      Demand and supply of crude or any other commodity is no longer just a North American or G7 issue.     The point is, commodity issue is a global issue and it takes a long time to balance things out.

For DJIM, we got crude and inflation plays covered and we leave financial stuff alone, what else do we have to worry about at the moment?   Nothing really!    We fight the good fight and we leave the risky stuff to others.  That's the difference between being stressed out as we come back to March lows or being relieved by playing the commodity stocks.  In a few weeks, another round of earning reports will start and we'll have a much better picture this time to gauge how much oil and other commodities are affecting our economy.   In the coming week, our focus will continue to be on our fave groups, including the Shale plays ( in depth look in tomorrows Journal) and other ones with good technicals, such as those making new highs eg. X, ENER.   MON will report on Wednesday and this one will be interesting to watch and we have a feeling it'll crush the number and investors will give it another rosy reaction.    Also, some M & A activity starts the week off for this group.

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.

Fed, who?

Another Fed decision day on tap!   Time sure flies these days!   Coming toward the half year mark, there'll be nothing but uncertainty ahead for the Fed into the next 6 months.   This Fed statement is going to be as difficult as ever.  Basically, taking action in their statement against one set of problem will hurt the other set of problems.    This time, we have inflation against economic growth, dollar against crude, financial sector against commodity sector.     The point is,  if they tilt one way to address one side of the problem it will definitely upset the balance of the other side.    In our opinion, it's best for Fed. to remain vague at this point until "more data " is revealed.      Addressing the high energy price and inflation worry does not mean Fed is going to take any immediate measure to counter them.    "We know the problem of this economy and market,  but we just do not have a satisfying solution at this point!"     This is most likely the best read we are going to get from Fed.  Wishy-washy.   Honestly, what can Fed do at this point?    There's simply no brilliant policy to improve the current situation.      Time is the only thing that can cure an economic downturn and/or an inflationary economy.

Ok, enough Fed noise!   Market seems quite oversold recently and some technicals formed today to suggest it may coincide with the FED. Spinning daily candles all around.   We are talking about the overall market, the indices here and we won't be surprised if a short term bounce starts at some point.    However, even if this bounce starts,  we are likely not going to participate as usual with the beta stocks because the next bounce will simply be a relief bounce at best.   Okay, maybe we'd flip one or two, but that's it.   The commodity market, will also react somewhat to Fed policy tomorrow and we WILL use any weakness to get some of our recent favourite plays.   Also, if the FED is wishy washy as we expect, the dollar bulls will not be happy and this will help the commods'.   If the dollar is to rally, the market needs reassurance rates will go up later in year.  These plays include many "Shale" plays and a few Steel plays.    Speaking of which,  in respect to steels, the RTP Australian price increase achieved of 96.5% for iron ore lumps and 79.9% increase for fines iron ore fines with a Chinese steel producer confirms that supply/ demand for steel making materials is staying tight, which should boost raw material and steel prices.   Higher steel costs in Asia should also lead to greater opportunities for the CLF' X's.   But, this is not the only positive for CLF as the world's largest steelmaker( ArcelorMittel) announced it had signed an agreement to acquire Appalachian based Vol Coal grp, which produced 1.5mln of met coal last year.  Severstal (Russia) has also supposedly submitted a bid for a coal mining complex in the U.S.   This shows the world thinks the U.S is an attractive place to produce,  it shows steel producers are more concerned with the guarantee of supply than costs.   CLF is a key supplier of the iron ore and the met coal they all need.   Arcelor eats up 45% of CLF's iron ore and Severstal recently renegotiated its ore supply agreement with CLF, guess Arcelor will be next!...No better way up for a big steelmaker to shore up supplies than eat up a CLF for breakfast in the future.

Coal and Agri have cooled off a bit lately and today Agri, possibly due to earnings jitters sold off at 2:30pm and many commodity plays followed.  It doesn't really bother us.    In fact, the consolidation action is much needed.    While coal and agri have been cooling off, we've been picking up the heat in the Shale and steel plays since last week as seen in latest alerts.    You see, it just doesn't stop.    We are going to pay particular attention to MON report tomorrow, as oppose to the other major event.  We'd likely save an entry, good or bad guidance report from MON until later.   The guidance that'll be provided during CC will give us a very good clue on the rest of the industry.    As for entertainment, we'll also stick around AH's for RIMM report, as a tradition more than anything else for us Canucks.

..indecisive is just fine with us.!

Everybody knew a hike was inappropriate as it would rattle the markets worldwide, what most notably the big currency traders and many market participants wanted was for the FED to show a hike was just around the corner, a reassurance we spoke of prior to yesterdays trading day to wake the dollar.   Instead these players got the bare minimum, which includes a wishy- washy...indecisive hands- tied FED.   It wasn't enough to 'pump' the dollar,  but it was just what we wanted yesterday....  "Also, if the FED is wishy washy as we expect, the dollar bulls will not be happy and this will help the commods'.    If the dollar is to rally, the market needs reassurance rates will go up sooner than later.   These plays include many "Shale" plays and a few Steel plays.." .   Going forward if the ECB does not raise rates next month and if the FED doesn't give more hints of a hike in September the dollar will most likely pare its gains.     Simply, this will give us more time to exploit the commodity plays here.

The FED reaction was initially muted,  we were actually surprised the market took the statement so well as it pushed higher eventually.   This was occurring as our commodity stocks pressed higher,  something was amiss and eventually at the close the Dow settled where we thought it would, a measly +4pts up...as in nowhere fast!.    As we pointed out,  we would not be chasing the usual 'high beta' suspects if the market bounced at some point.   Looking at the finish line at the close, one part of our preparation/ strategy into yesterday was to go with our commodity plays on weakness before or after FED decision.    The easy route is to go with what we centered on recently, the Shales, the Steels and not the cooling off Coals, Agr stocksi.    A members question might have got you 5pts on a steel, SCHN yesterday.    After the wish washy statement going with Shales, Steels was the ticket.    We're blind to many sectors in the overall market, so we can only say we had the right ones in our world as these plays were the ones that advanced and finished better than the any high GOOG, AAPL beta stocks.    We are not saying it's gonna be an easy train ride for the commods' again now,  what we are saying is the FED will not de-rail them so fast!.   You still have to be selective, either recycling the stocks or sectors, while the FED is held hostage by the price of OIL!. 

So here we are next morning, futures hit, dollar hit, many an analyst probably ready to make up for their recent exuberance over RIMM heading into earnings by saying this is now an opportunity of a lifetime..lol... Well, at least that's what we think will happen, unfortunately the everyday retail investor is most likely tired of their hype and tired of this market.    An email from a member put this market into context, many an investor is just staying out of the market, many have stayed out completely for months waiting for the market to change and not willing to play the commodity game.   We think a lot of this is probably because the prices of these stocks look to be in nosebleed country.    Unfortunately, they don't seem to want to recall these were half, a third of where they were just months ago!.   The same scene may occur months from now when some of 'Shales' are trading over $100,  this of course depends if they keep on showing the shale has big potential for commercial development.  It has so far.  Millions are being poured in!.    This is not the same market we know many of you from when we were discovering earnings gems, potential IBD's and trading them from the 10's up!.   That was a happy time economy, you are not going to see this now.   Many of these stocks have been regulars on IBD for months  and many have exited the list.   It's a whole new ball game and you have to make changes in your trading game plan.   We had to!..Get over it, if you haven't yet.    It's a tight market and it's getting tighter as in there is less sectors to play week after week.   If you're not in the right place, you're accounts are not moving or worse going in the wrong direction.

Market train wreck.... still fine with us

Oil Oil Oil!...FED decision....falling dollar....underwhelming Tech forecasts....GS hitting their amigos' when they're down.....all helped lead to a 3% train wreck across the major indices..    No doubt about it, you could smell the doom and gloom before the opening bell!   For many people, the only thing they could do is pray that their holdings don't get hit.   Wishful thinking!    Basically, when mkt is set to open negatively on a very bad tone, you have to be prepared for a potentially nasty day and go defensive.      By going defensive, we don't mean by shorting or buying gold or T-bills.    When we go defensive, we trim any excess position or number positions to a comfortable size.     This is all still assuming that we are holding the best of the best plays before the opening bell.    As the day progresses and the day winds down, it will always become apparent which one of the holdings you trimmed earlier are bucking the market trend and you may add it back later on.     You may ask "what heck is the point of this exercise if you going to end up with a similar position toward the end of day?"     For us, this is just our way of dealing risk.  You never know when and if panic finally sets in and takes everything down.   Everyone has his/her own way of dealing the "monster down day" and this is how we deal with it.

To say this market is in trouble is just blatant ignorance.    Market has been in trouble for a long while and if it wasn't for the fact we have been sticking to the commodity plays, we wouldn't have enjoyed it either.      A series of disappointing reports and downgrades and breakout of crude just pushed this market right over the edge.    Yes, forget about that March low and you are now staring at a new low.     Even as a bystander, we can feel the pain across the board.  The casual newspaper reader must be thinking the world is falling apart, the headlines are scary.

With DJIM plays, story is different but it's eerily familiar.    Deja vu?    Most of the Shale plays actually finished in the green, a few steel plays showed resilience given the market condition.    Coal plays also closed near the high and we are encouraged that this group is showing good strength.    Perhaps, a turn is in place for the Coal group after the recent minor pullback.   The volume was low in these groups, no real sign of selling.   The game plan is exactly the same for DJIM and will continue to buy our favourite commodity plays on dips and ignore pretty much everything else.   

The question remains now is that "how much more bleeding will this market take before a bounce occurs?"    We can potentially bounce tomorrow but again, we are not interested in any beta stocks at this point.     We are also coming to the month end and there's potentially the "window dressing" action that can take place.    Just keep in mind, any "window dressing" will not come to the beaten down sector.  It realistically should come to where we've been.  

• The market, majority of sectors have no positive catalysts, the Shales (exploration & production), the Steels, the Coals....DO!.  It's simple you do want to be where bearishness is contagious or do you want to be where bullishness is contagious?  

DJIM #26 2008

Really, nothing brilliant to say to kick off the week...everything we do or are looking to do is in the past weeks Journals'..at least!.  It's been a tumultuous first half, the noise of doom is becoming louder and we're still standing tall while the DJIA sinks 1200 pts this June alone, making it the worst performance since post 1930.   Bottom feeding is not our game, if we're going to spread our money out in this market, it better put in a few 2-3% day to the upside first.   Till this seemingly impossible feat other than for techincal reasons...we live by the last words here and so should all.   Some charts of our fave group stocks are up..not all...to show the potential of another leg up on breakouts...

Oh yeah, a short week gives us employment numbers on Thursday, just in time to potentially throw out the kitchen sink.  May just be a volatile 4 days!.

A few notes early morning can't hurt some of our groups...Arcelor Mittel, world's biggest wig of steel may have sights on RTP now, also MT has increased stake in Macarthur coal and PKX wants 10% in same, Lehman also upgrades PKX to overweight...JRCC acquires more reserves in hot Appalachia area,  Deutsche raises CLF to $150 from 115.   We've discussed all these types of possibilities the past little while...reserves, stakes, estimates climbing.

• The market, majority of sectors have no positive catalysts, the Shales (exploration & production), the Steels, the Coals....DO!.  It's simple, do you want to be where bearishness is contagious or do you want to be where bullishness is contagious? 

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.

Stabilizing or just holiday blip?

For the past 2 trading we've seen what usually signals a market trying to stabilize, indices sliding from green to red, red to green and so forth intraday, one major index green the other red at the close.   Yesterday, we noted before the ISM that the market felt like it wanted to do something in a big way, especially if the ISM came in beyond the mean estimate, either way.  It did showing a number over 50 which shows expansion.  The gap down was soon fixed.   This 'feeling' was in part because the FTSE stumbled bad overnight, we had a very negative futures pre-market, yet our shadowlist high beta stocks were acting 'fishy' well (AAPL, RIMM).    Sometimes when things don't make sense, they do in the markets.  To us it was a clue to what may occur later in the day.  Preparation is always a key in trading even if what you're looking for doesn't come to fruition. When it does, it shows you were on your toes and not bleeping yourself for a missed opportunity to make dough.    Unfortunately this fishy action and move faded bad and this soon smelled of  holiday blip of volatility as the market sank lower than the gap down as the FTSE approached its last hour of trading.  Doubt this was a coincidence as we mirrored the day drop overseas.   A positive came in the afternoon as a potential reversal started with end of day volume that  may signal a bottom, SPX shows what maybe a triple bottom.   For the market to stabilize capitulation is needed, but it does not have to come just yet.   The market can rally up for sometime before coming down again, in the meantime the market can reverse.  End of day preparation payed, high beta's AAPL, RIMM closed up 6-7 pts and the Financial UYG put in a big volume reversal day.  FLR, a E&C company had a 7 point move intraday feeding off the ISM number as we alerted. 

As far as we're all concerned about the action, well... okay, we're really not concerned because we're all " Shaleheads ", right?.    Simply, more data is to be released this week, including employment numbers which could fuel markets into next week or kill it.    We want to see this mkt up 2%-3% in either a big 1 day or on consecutive days to signal any possible trend change, until we should just focus with what's been working and let the big money others work it all out. 

Shales,   we had some very positive joint venture news from CHK AH's.   This partnership just confirms more and more the potential commercial development in HSP.  We're not concerned about what it may do to the Shales today, we're just more thrilled about the long term prospects for our plays.   As speculators get whiff off this play with momentum money, we may get more volatility in days and weeks to come.  This could always involve some selling, profit taking on any of the plays showing all mighty gap exuberance as we saw last night.  On the other hand momentum is a wicked thing, so who knows how far these can go in the short term.   Yes, more than ever after CHK venture, we think it will be a race amongst the plays for triple digits $100+ as we said the other day.

Steels,   if there was a disappointment it was the SCHN EPS follow through reaction we warned of.   The results were excellent, but initially we thought they may be cooked in for the entire group as seen soon after by the action in SCHN, X, CLF.   Just as since MON's EPS result, this group may have signalled a pause, but the Ag-Chem group is dealing with the recent USDA report as well so it may not follow their flight.   One thing we were impressed about is the rebound of the $CRX of 17pts late in the day.  We need to cut through a 6 day trading wall at 969 here to know there is potentially more breakouts in store for many of the plays/ groups and for others to just get going again such as the Shippers here in the short term. 

Update on Wednesday, July 2, 2008 at 07:56AM by Demi/ YourPersonalTrader

Update to acreage of Shale plays within DJIM world to most important player CHK's 440k net acreage,

HK  275,000, CRK 50,400, XCO 101,000, GMXR 21,000, GDP 70,600, PVA 63,000.   Remember, you cant just look at acreage without knowing share count and where the acreage is.   The medium value is 20k/acre after taking into consideration those within and outside of 15mile range of CHK's.   PXP, paid more likely 25k-30k/a.  CHK needed cash after all their land acqusitions and so this is best way of raising cash and go looking for it in the markets.

Uglier than Betty...

There's no need to point the finger because it's pretty much one sided action today.    Action seen today is simply a "massacre"!    So yes, it's that ugly!     Unfortunately, there was really no warning to the extent, but the damage in shippers, solars and the other days Steel earnings 'cook in', were probably indicators more than we'd like to admit.   Even the early "Shale" excitement was pushed aside as collateral damage spread out into just about every part of the equity market by the afternoon.   Yes,  the "all mighty exuberance", should have been sold into considering the sickness seen in the market.    Almost nothing can withstand such selling, everything becomes vulnerable, especially any momentum...speculation plays.   Generally, we feel  people were dumping stuff indiscriminately before the long weekend, and perhaps, before the employment report tomorrow.   Some may blame the expected ECB hike or the weakness in coal price as the catalysts for the commodity selloff.    We think, regardless the reason, someone(s) out there were ready to dump lots of commodity related shares onto the market.   Is it profit taking or is it something else?.   We don't know because there's literally a million reason to sell a stock and we're not about investigate.   So in conclusion, commodity plays were taken down hard and if we remember correctly, this is the biggest single day carnage for CRX this year.  It closed at 918, our last note said,.."those dominos we speak of in full effect.", the CRX was around 955.   The " big way...domino effect including commods", noted yesterday came today.!  It was on the mind and unfortunately it happened.   Hopefully, we are all still standing!.    Action like today makes us weary to buy anything.   Traders may have an opportunity to trade Friday, others should just stay out!

As for the rest of the market, the story got uglier and helped push the commodity massacre.     This is the week we are supposed to wave our respective national flags to celebrate.   Instead, people are waving a white flag to this troubling stock market.    It's just very unsettling to see the broad market action,  even if we've stayed out of the trouble the entire year so far.

What is DJIM looking for at this moment?  A relaxing weekend...simply!.   We'll  look for any changes in sentiment toward the commodity sector next week,  Friday will be irrelevant in our minds.     Unfortunately, despite today's massive sell off,  we just can't draw a firm conclusion on the sector.    Until positive sentiment returns, we are calling this a severe correction for the commodity sector.    Sell offs like today take sometime to recover and before we even think about stepping back in, we need to see some stability first.

Tomorrow's employment report may be a catalyst in either direction and we'll watch for development closely as traders only.   We are most likely to stay very quiet the next couple of trading days.

DJIM #27 2008

Hope, you had a safe and nice 4th of July holiday with family and friends.   Unfortunately, there is nothing safe and nice in the markets upon your return,  but that shouldn't be a surprise as some market indices sit at mid 2006 levels.!    Well...at least we had a good 26 week of trade to be happy about, now at DJIM #27, we can only hope for a summer rally eventually to come.   Wouldn't it be something to enjoy 26 week's in a brutal market and than be part of a summer rally..bounce..reversal, whatever they end up calling it!.    We're not looking for an intraday, 1-2 day thing,  if a rally comes it should be long enough to get a nice tan!.    Last summer was great,  we hit the Shippers' hard and others just as the credit crisis was starting.   Who knows later this summer,  but in the meantime, we are staying out of the market early this week unless to swing a few intraday trades until this market gives us a positive signal.   Why?..because we can afford to be at this stage of uncertainty after a nice run!.   You don't need to trade every day of the year, you just need to be in the right places at the right time and we've done that.   Other times of the trading year, you preserve your extra made cash and wait for the next opportunity to attack!.    Let the market come to us, don't come to it right now.   It stinks, even if everyone's technical indicators are showing a potential reversal in the very near future.    Opportunities for us are not buying dips, chasing tail(s)!.   We have earnings starting this week and from early indication, our simple rule of not holding into earnings applies with a vengeance this Q!.   You will be slaughtered over 20%,  if something is not kosher in a report.   We've seen SCHN's cook in of great numbers and we've witnessed the whipping of NVDA last week.   We've seen this before,  it's not going to be pretty if this is any early indication.  No chasing what looks like a pretty headline premarket/ open for now in this environment.   No reason of being first ones in and than holding a white flag with your high buy in mid day.

Coals,  API2?.. What is API2?...It's not R2D2's nemesis from Star Wars, but it certainly caused a seemingly galaxy-wide tumult from Europe arbitraged across the pond to our markets on Wednesday.  API2, is the coal index for delivery in 2009 and it fell around 10% intraday in Europe.  The index has risen over 100% since beginning of the year, 75% in just Q2 and it was not unreasonable to think profit taking would hit one day soon.   The ducks lined up it seemed with the ECB hike the next day and the question if Trichet would show a bias that inflation control beats growth with an aggressive rate hike bias.   Also, a new Q had begun and instead of money coming into the market as the thinking goes at the beginning of any Q,  the hedgies most likely used this as an opportunistic time to throw up while retail buyers looked to start the Q buying.   Fund redemptions most likely played a part as well.   All orchestrated no doubt leading to a hard sell off.   Interestingly, China news of reducing exports and Russia having difficulty in supplying coking coal was positive stuff on the day for US co's that had no effect.   This showcases this story is still strong fundamentally, but we need to have this stabilize before chasing hard again.   We don't think a single day correction is enough.  

Steel,  it was not a surprise to see Steel take it on the chin in a 1-2 punch.  We've discussed the 'domino' factor in which no one is immune, especially in the strongest sectors to date this year.   Fertilizers, we've seen weakness already the past few weeks and they got hit as well.  A major ingredient to potential fast and furious declines in Coals and Steels is the 'rookies' who have gone into these sectors leaving the traditional non performing sectors behind in 2008.   This group of traders is not familiar with companies and the majority don't have a clue of the fundamentals in these groups as they are only chasing the fast money.   This eventually in part leads to fast and hard declines as they don't care about the fundamentals and just want to pocket what they can when they see action such as seen on Wednesday.   They don't know or follow the macro/ industry news, we have noted a lot of it in the Journals, yet even if we believe in these groups such as coal, steel for months, years to come, we still act like all the others to keep what we earned,  especially when we know how hard the dominos can fall in the strongest momentum names from the past.    Also to note, one big factor attributing to the steel decline on the heels of coal is the rookie thinking thermal coal price is used in making steel.   Well, it's NOT, it's met coal.    Also, ArcelorMittel surcharge news was misinterrupted by the market. Unfortunately or fortunately, selling pressure is selling pressure and it takes no prisoners .  No momo trader knows or cares CLF's thermal coal biz is only 2%, we have to act as traders not long term investors, even if we believe in the story.   We believed early and have rode the train believing the fundamental story would take our steel, coal plays higher early this year.  Just like the Shales recently, we try to get in first for the easy money.   Now, we simply wait for stabilization in the groups and begin to wait for the fundamental story to creep back into the market.  The sell-off was unwarranted and maybe a nice opportunity is here very soon.

Shales,  one thing you definitely could have avoided was these momo, speculative plays taking a gap down on the abbreviated Friday session, if you follow the 'domino' theory here.   We might not have technical damage as most of the plays regained 9ema, but it was a short session and unless great catalyst results appear early in the week, we can't say air won't be taken out of them slowly as we progress into the week.   Also, you must think catalysts will not have same effect they had recently as they could only provide an opportunity to get out for some.  Be careful on pepped up bids in premkt on any news as they maybe just a hallucination by the first hour of trading.  

Noise of reversal, summer rally will be heard in days, weeks to come based on technical signals.  As far as we're concerned today, we need a climate change and see leadership emerge.   Will it be the Commods' or something else?.   Hard to imagine what it could be in this environment, if not the commods' coming back to life.   Considering, we've all been busy this year in a struggling market, don't be ashamed to rest up now until signals start to cry buy once again.  This is the time to make mistakes as stocks fall below 10 week moving averages, don't be a hero.  Take a big position in cash and most importantly avoid risk.    Full time traders can always play intraday, it's in the blood.....others probably shouldn't!.  Whatever you do, just make sure you stick to who and what you know. 

Nothing accomplished...

...there or here!.    No problem, money saved!.    It seems there's just never enough panic or excitement to set this market in motion to move heavily into one direction.   Of course, we are talking about a market, excluding the financials here.     After the big intraday ups and downs, what many people care about the most is the final box score.  The score was basically a draw,  but it surely picked up a few eager beavers just before noon, only to send them to the showers an hour later.    At the end of the day, the safest conclusion we can come up with is that we aren't going to get a "sustained" bounce of any length anytime soon , what we mean is let's just stop anticipating one from oversold conditions.   Damn, we've been here in oversold levels for a month now!.   Maybe, if we don't wait or talk of one,  one will appear miraculously. 

Why no reversal of significance yet ?   The biggest culprit is the financials.   XLF hit a new multi year low and most of the popular financials closed near the low of the day.    There's really no real catalyst to drive down the financials other than the general feeling of "nobody wants to own them"!    We have talked about the financial companies and sector in general many times in the past on this site.    The feeling has been that "if you don't want a terrible year, you need to avoid them"!    Everybody agrees these days that there's value in some of these financial companies, but the high probability is that you won't see any return from these investment for a long time simply turns people away.

We are at the beginning of a new earnings season and things are not looking good for this market.   We noted a few precautions yesterday as to how it's shaping up.   Despite this most recent decline, we feel this market is still only pricing slowed growth and/or slight disappointment from most companies.    What if many popular companies pull a NVDA out of their report?    That'll set some panic for sure in the market.    Basically, this market is still not pricing in a full blown recession or a very troubled economy.    We don't blame this market because you can't simply assume there's fire if you smell smoke!     The most important issue these days, in our opinion, is still inflation.      This is definitely a topic that has been largely avoided in the last two decades because the new technology essentially kept the inflation in check for the longest time.     Well, as evidenced by the increasing cost of raw material, the balance seems to be tipping.     Now, we don't know if we are going to enter a high inflation era or not.   We also don't know how long this inflation will stay with this market.   One thing we do know at this point is that inflation is a real possibility and it's more probable than many people would like to admit.     Bear this in mind, the tools that Fed used to speed up the recovery of a troubled economy may not be applicable this time.     Of course, we are referring to a sustained low interest environment.     Basically, our macro view is that we may see some nasty surprises in this earnings season that can potentially cripple any chance of a sustained summer rally.  Technically, it should come, but this market is becoming very fundamental.

Commodities were hammered all over the place, including the energy, ........as for stocks, E&P Shales felt the vibrations ,..also, GDP announced in AH that they will be issuing a secondary of up to 3.4 million shares (10% OS).   Stock is down and this is something we have to be prepared for in the coming weeks from more than one E&P shale.   It comes with the territory.    Basically, if a company in the Shale region wanted to develop the assets on their own,  it is understood that they need major financing to do so.     We are just a bit surprised that GDP needed more money after they socked away 175+ mill from CHK not too long ago.      In our opinion,  it's probably smart to just sell your assets to a cash rich player, if you are smaller players like GMXR or PVA.     In any case,  a substantial pullback from any secondary news in Shales should be considered a good opportunity to look out for , but not on days energy is getting licked!.    Shales are exploration companies and of course obtaining cash is essential for any possibility of future development.    It's a quite different than Solars raising cash, you know what we mean. 

Both steels and coal plays have eeked out a slight gain today. So what, they also sucked in a few before noon and never regained their highs.  We know it's tough to see some up 5%+ in morning, but damn they are still way off Wednesday's high's.    This gain end of day is understandable given the nasty sell off they endured last week.    As of this moment, we aren't looking to accumulate or establish new positions in any commodity sector.    We are sticking to sitting by the dock of the bay wasting time and watching for some intraday setups for the most part.    A potential catalyst to revive the momentum of these companies would be some bullish earning report/guidance, but after SCHN you now know the craziest numbers may be priced in.    We will definitely be looking out for those, but not chasing until we feel a change of heart in the market.

Bottom line,  it feels like this is going to be a difficult summer to trade.    Just like in the past summer, we are only going to looking at the most obvious and easiest setup to trade.  Something will come, just be patient and avoid sucker bets like yesterday before lunch.  This means that we'd be spending more time waiting than actual trading.   It served us good in the past and will probably do so again this time.