LEAP Update Wednesday May-31st
Smoke and Mirrors
The key to the entire dog and pony show is simple. Iran must immediately and completely cease and desist from processing uranium and bomb research. It must be independently verifiable by the IAEA and the IAEA must have free and unrestricted access to any Iranian site to perform their inspections. Only after the research and enrichment has stopped and the IAEA performed its inspections and reinstalled their remote cameras to prevent a restart, will the US sit down with the rest of the members of the council to discuss Iran's nuclear ambitions. This has a ZERO chance of ever coming to pass in this form.
Iran has repeatedly said it will not halt nuclear experiments under any circumstances even if sanctioned by the UN. It will obviously not stop the research and allow inspections and cameras installed well before any meetings to discuss the future of their research. To Iran that would be unthinkable and make them appear weak in front of their peers. Their entire stature in the community is built on their anti American rhetoric. Caving into America just to begin talks after months of posturing simply will not happen.
The political show we saw today with a highly public announcement by Condoleezza Rice was just another nail in the Iranian coffin. The US is taking care of all the potential objections as it tightens the noose around Iran's nuclear ambitions. Russia and China have told the US it must exhaust all diplomatic avenues before they will vote on a resolution giving the UN enforcement rights against Iran. Today's announcement was just one more item checked off the list. The US knows Iran will never agree as do the rest of the member countries. Still they had to go through the motions for the benefit of the global community.
Oil prices plunged to $70.05 on the news, a drop of -$2.70 from Tuesday's high but once the show was over oil rebounded strongly to $71.50 as traders laughed about the free money. It was a perfect contrarian trade. Sell the rumor, buy the news. The press conference was advertised for a couple hours ahead of the event as a "big change" in US posture. Big laugh was more like it. But, the press ate it up and it went off as planned.
Now that the event is over and reality has set in prices are back where they started and everybody is waiting for the Iran comments we should get later tonight. It should be interesting but I sincerely doubt they will say anything positive.
Oil and gas inventories are due out tomorrow morning and there is an expected decline in crude and build in gasoline. If gasoline does not build substantially it would be bullish for prices. Thursday marks the official start of hurricane season and all eyes will be on the Caribbean once the storms begin to appear. Long-term weather forecasts are now calling for much hotter weather and that could spawn storms on a weekly basis. That news spiked natural gas by +34 cents to nearly $6.50 on worries about damage to the gulf and anticipation of draws for electricity generation.
Energy stocks roared back from the morning dip and many stretched their gains to multiple dollars. WHQ +4.90, HES (AHC) +4.87, THE +3.98, DO +3.93, HOC +3.39, KMG +3.01, RIG +2.97, OXY +2.81, EOG +2.76, GRP +2.74, HAL +2.67, HP +2.53, BHI +2.48, PTR +2.40, CNX +2.37, GI +2.33, TSO +2.01, BTU +2.00
Watch List: Arch Coal Inc
I had hoped to see a pullback in Arch Coal to give us an entry at a cheaper price. We did see a small decline into yesterday's close but it gapped up this morning rather than extending the drop. It is coiling just under $49 and appears to be readying a breakout. I believe if we wait any longer we will miss that breakout. The forecast for a hotter summer and the approach of the summer storm season is producing higher lows on ACI and a tighter range as pressure builds. I am going to recommend an entry on ACI for Thursday morning. The rebound in the markets plus the rebound in energy prices suggests we could see a positive market on Thursday.
Buy Jan $55 Call ACI-AK currently $4.10
Stop loss $42, no insurance put