Leaps Trader Commentary
Despite almost daily sound bites from multiple OPEC members or officials about further production cuts the price of oil remains in the mid $50s.
Crude closed at $57 on Friday despite a confirmation from OPEC they would hold a special meeting in Cairo on Nov-29th to discuss production cuts. Iran and Venezuela are leading the charge to cut another one million barrels per day of production and Venezuela is already claiming they will push for another million-barrel cut at the Dec-17th meeting.
Traders are saying OPEC who? The constant chatter in the press is being ignored as is the news of new violence in Nigeria. The IEA World Energy Outlook report released on Wednesday was also ignored even though it built a case for $100 oil sooner rather than later.
The problem remains fund liquidations and fears over a rapidly slowing global economy. The EU announced on Friday it had officially fallen into a recession. That should not be a surprise to anyone since the majority of the world is heading there fast. Retailers are predicting the worst holiday shopping season in a lifetime. Crude demand in the U.S. has fallen -6.5% over the last six weeks. The IEA said on Thursday overall demand for 2008 would only rise by +350,000 bpd and that was the lowest gain since 1985. If the recessionary conditions continue to worsen the IEA believes that global demand in 2009 could be lower than 2008.
The price of natural gas has fallen so low that Boone Pickens has put his plans to build a 4,000 megawatt wind farm in Texas on hold because lower prices for gas would make it uneconomic. Pickens said gas prices need to be around $9 per BTU and it settled on Tuesday at $6.70 per BTU after falling -7.5%. That was the biggest one day decline since Sept 2nd when gas fell 8.6%.
With gasoline prices falling so sharply I am amazed demand has not yet rebounded. The price per gallon has dropped below $20 in more than 25 states with Wyoming getting credit for the lowest price last week. The Maverik store in Wheatland WY was selling gas for $1.45 per gallon on Thursday and 2-cents less if you used a store loyalty card.
Eventually something or more than likely several things will happen to put a bottom under oil prices but until that bottom appears the volatility could continue to be huge. December crude futures expire on Wednesday so expect some more volatility early in the week. Fortunately Thursday's rebound in prices pulled several energy positions back from the brink in danger of being stopped out. The banks were not that fortunate as continued selling in the sector took us out of BAC and the XLF.
I promised everyone an update on the IEA World Energy report that came out on Wednesday. I have not finished with it yet but I hope to have that update by next weekend.
December Crude Futures Chart - Monthly
Portfolio Listing & Top Picks
Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.
Position Summary Table
If you are looking to add another position these are my top picks for this week. The target prices listed would be the ideal entry points for these stocks today. There is no assurance any stock will ever return to these support levels and you will need to make your own decision about an entry point above these levels. I believe these stocks have the best potential this week. The list will change from week to week based on technicals, fundamentals, crude prices and market action. The list is not sorted in any particular order.
Top Picks List
New Energy Plays
None - See Watch List
New Non-Energy Plays
None - See Watch List
New Watch List Plays Triggered
HLX - $8.42 Helix Energy Solutions
A -20% two-day spike triggered our entry at $8.50 with room to spare. No specific news.
Helix Energy Solutions Group, Inc. (Helix) is an international offshore energy company providing reservoir development solutions and other contracting services to the energy market, as well as to other oil and gas properties. Helix operates in the Gulf of Mexico, North Sea, Asia Pacific and Middle East regions. The Contracting Services segment utilizes the vessels and offshore equipment that when applied with the methodologies reduce finding and development (F&D) costs. The Oil and Gas segment is engaged in prospect generation, exploration, development and production activities. On December 11, 2007, the Company’s wholly owned subsidiary Cal Dive (CDI) completed the acquisition of Horizon Offshore, Inc. (Horizon). In July 2007, the Company acquired the remaining 42% interest in Well Ops SEA Pty Ltd. On September 30, 2007, Helix 30% working interest in the Phoenix oilfield, the Boris oilfield and the Little Burn oilfield to Sojitz GOM Deepwater, Inc. (Sojitz).
Breakdown trigger: $8.50, hit 11/12
Position 2010 $10 LEAP Call WAI-AB @ $3.10
Chart of HLX
ENER $27.98 - Energy Conversion Devices
The breakdown entry at $30 was hit on Tuesday and ENER gave back another $10 by Thursday's low. Fortunately most of that was recovered by Friday's close. Zacks and Jefferies reiterated their "buy" on ENER despite the decline.
Energy Conversion Devices, Inc. (ECD) commercializes materials, products and production processes for the alternative energy generation, energy storage and information technology markets. The Company designs, manufactures and sells photovoltaic (PV) products, known as PV or solar laminates that generate renewable energy by converting sunlight into electricity. Solar laminate sales represent more than 90% of the Company’s revenues. It also receive fees and royalties from licensees of its nickel metal hydride (NiMH) battery technology and sell high-performance nickel hydroxide used in NiMH batteries. It has two principal joint ventures that are commercializing technologies invented by ECD: Cobasys LLC, which manufactures and sells rechargeable NiMH batteries, and Ovonyx, Inc., which is commercializing phase-change memory devices through licensing and joint development agreements. The Company operates its business in two segments: United Solar Ovonic and Ovonic Materials.
Breakdown trigger: $35, hit 11/11
Position: 2010 $50 LEAP Call KYU-AJ @ $7.90
Chart of ENER
CMP $52.06 - Compass Minerals
Compass spiked above $60 at the open on Monday after China announced its $565 billion stimulus program. That announcement was quickly forgotten and Compass dipped below $50 on Thursday as the market imploded. After a volatile week we are back where we started and I think Compass will be very strong once a normal market returns.
Compass Minerals International, Inc. (Compass) is a salt producer in North America and the United Kingdom. As of December 31, 2007, the Company operated 10 production and packaging facilities, including the rock salt mine in Goderich, Ontario and a salt mine in the United Kingdom in Winsford, Cheshire. The Company’s product lines include salt and sulfate of potash, and it operates a records management business. Salt consists of sodium chloride, potassium chloride and magnesium chloride. These products are used for highway deicing, dust control, consumer deicing, water conditioning, consumer and industrial food preparation, agricultural and industrial applications. In addition, Compass is a producer of sulfate of potash (SOP), which is used in the production of specialty fertilizers for high-value crops and turf. In the United Kingdom, the Company operates a records management business utilizing excavated areas of its Winsford salt mine with two other locations in London, England.
Breakout trigger: $60.50, hit 11/10
Position: MARCH $70 Call CMP-CN @ $4.50
Chart of CMP
HES $55.50 - Hess Corp
Hess broke out over $62.50 to trigger our entry on Monday. As oil moved below $55 Hess imploded to trade as low as $47.50 on Thursday before rebounding. The rebound was very strong and Hess should continue higher as long as the energy market just remains flat. No specific news.
Hess Corporation (Hess) is a global integrated energy company that operates in two segments: Exploration and Production (E&P) and Marketing and Refining (M&R). The E&P segment explores for, develops, produces, purchases, transports and sells crude oil and natural gas. These exploration and production activities take place principally in Algeria, Australia, Azerbaijan, Brazil, Denmark, Egypt, Equatorial Guinea, Gabon, Ghana, Indonesia, Libya, Malaysia, Norway, Russia, Thailand, the United Kingdom and the United States. The M&R segment manufactures, purchases, transports, trades and markets refined petroleum products, natural gas and electricity. As of December 31, 2007, the Company owned a 50% interest in a refinery joint venture in the United States Virgin Islands, and another refining facility, terminals and retail gasoline stations located on the East Coast of the United States
Breakout trigger: $62.50, hit 11/10
Position: 2010 $80 LEAP Call WHS-AP, $9.70
Chart of HES
Stops and 900 Point Swings
IO - ION Geophysical *** Stopped ***
DRQ - Dril-Quip *** Stopped ***
BAC - Bank of America *** Stopped ***
XLF - Financial ETF *** Stopped ***
Energy Play Updates
IO $3.91 -1.35 - ION Geophysical *** Stopped ***
ION never really recovered from the post earnings drop started back on the 4th and dipped below our stop of $4 on Wednesday. There was no specific news and the Thursday rebound was anemic.
Breakout trigger: $7.00, hit Nov 4th
Position: 2010 $7.50 LEAP Call LAC-AU @ $2.15, exit $0.90, 11/12
HK $16.50 -1.08 - Petrohawk Energy
Petrohawk had a lot of good press for the week with Jerry Castellini singling it out for praise on CNBC on Thursday. HK responded with a +17% gain for the day and well off the $13.75 lows.
Breakdown trigger: $16, hit 11/6
Position: MARCH $20 Call HK-CD, $2.85
XCO $7.05 -0.96 - EXCO ResourcesAfter a dreadful two-day decline on Wed/Thr XCO rebounded +24% into Thursday's close plus another 15% it was in the hole at Thursday's low. It was a miraculous recovery!
Breakdown trigger: $7, hit 11/6
Position: JUN $12.50 Call XCO-FV, $1.25
DRQ $18.51 -4.49 - Dril-Quip *** Stopped ***
DRQ declined all week and I was actually glad to see it stop out. DRQ never recovered from the earnings report on the 10th and the slight earnings miss.
Breakdown trigger: $22, hit 11/7
Position: JUN $30 Call DRQ-FF, $3.40, exit 11/13 $1.35
MOS $32.47 -4.02 - Mosaic
No specific news as Mosaic traded with the market. Support at $30.
Breakdown trigger: $35, hit 11/6
Position: 2010 $50 LEAP Call LXW-AJ, $7.10
DWSN $20.30 -2.13 - Dawson Geophysical
DWSN had no specific news and traded with the market. DWSN said its order book was full and backlogged through 2009. DWSN is the leading provider of seismic services in the continental USA.
Breakdown trigger: $22.50, 11/06
Position: MAR $30 Call DVQ-CF, $2.05
BUCY $25.18 +2.43 - Bucyrus International
BUCY traded with the market but rallied late in the week on receiving an order for a $200 million Model 8750 Dragline. BUCY was the best performer for the entire portfolio.
Breakout trigger: $28.50, 11/4
Position: 2010 $40 LEAP Call YHB-AH, $5.40
DIG $30.42 -$3.16 Proshares Ultra Oil & Gas ETFA monster drop on Wed/Thr as oil moved under $55 but recovered most of the loss until just before the close on Friday. DIG is hostage to crude so expect volatility.
Ultra Oil & Gas ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Oil & Gas Index.
Position: March $50 Call DPB-CX currently $5.00
NE $26.89 -2.20 - NobleNo news, market weakness only. Support at $26, stop $23. No change in play.
Earnings Oct 22nd, $1.43 per share up from $1.18 and est of $1.33
Breakdown Trigger: $35, hit 10.6
Position: 2010 $40 LEAP Call YVJ-AJ @ $5.20
NOV $25.81 -2.14 - National OilwellNo news, market weakness only. Stop at $20, no change in play.
Earnings: Oct-23rd $1.44, +28% compared to analyst est of $1.31
Breakdown trigger: $28.50, hit 10/8
Position: May 2009 $40 Call NOV-EH @ $6.00
PBR $21.45 -$5.32 - PetrobrasPetrobras reported record earnings on Wednesday and was promptly downgraded by Credit Suisse. The analyst questioned Petrobras ability to fund the build out of its new finds with oil under $60. Duh, let's see. $500 billion in oil waiting to be drilled and you need $25-$30 billion to get started? Give me a break. Support at $20, stop at $18.
11/12 $1.40 per share record.
Breakdown trigger: $28.50, hit 10/6
Position: 2010 $40 LEAP Call YMO-AH @ $7.00
PDE $15.68 -$1.84 - PrideZacks reiterated a buy rating after the analyst presentation on the 10th. $10 billion backlog. Fleet utilization was 98%.
Earnings: Oct 30th, $1.09 vs .67 Q3-07 and est of $1.03
Breakdown trigger: $20, hit 10/6
Position: 2010 $25 LEAP Call YAD-AE @ $5.00
RIG $70.89 -$6.22 - TransoceanTransocean traded with the market losing $10 on the Wednesday drop but recovering into the weekend. No news.
Earnings schedule: Nov-5th
Breakdown trigger: $80, hit 10/6
Position: 2010 $100 LEAP Call YDR-AZ @ 13.40
UWM $18.06 -4.59 - Russell 2000 Proshares Ultra ETFOur stop at $17 was hit on Thursday but I sent an immediate email to reenter the position. I believed the retest of the lows was going to work. By Friday's close I was not so sure. I am going to reset the stop at $16 and if we get hit we will be out.
I am still expecting a strong move higher over the next three months so we have plenty of time to watch this position. If the Russell moves back to 700 the UWM should hit $50. The dollar we lost on the stop is chump change compared to our potential profit.
Ultra Russell2000 ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Russell 2000® Index.
Recommended 10/23 at $19.94 on the UWM
Position: UWM $25 April Call Option ULX-DY
ATI $21.20 -$3.08 - Allegheny TechnologiesSame story, different stock. Market weakness blunted last week's gains. No specific news. Stop $18
Earnings: 10/22 -26%, $1.45 vs $1.88 year ago, $1.44 est
Breakout trigger: $26, hit 10/13
Position: 2010 $40 LEAP Call YFQ-AW @ $3.60
BAC $16.42 -$4.07 - Bank of America *** Stopped ***Continued selling in financials is crushing even the good stocks.
Earnings: Oct 6th @ 15 cents
Entered: Oct 13th @ $20.87
Position: 2010 $25 LEAP Call WBA-AE @ $5.90, 11/13 $2.15
STLD $8.12 -1.40 Steel DynamicsSupport at $7.50, no news. Stop $6.00
Recommended 11/2 @ $11.92
Position: 2010 $15 LEAP Call WAF-AC currently $3.40
JPM $34.47 -$3.28 - JP MorganNo specific news. Still waiting on the bailouts to kick in and revive the financial sector. Stop $32.
Earnings: Oct 15th @ 11 cents
Breakdown trigger: $40. Hit 10/6
Position: 2010 $50 LEAP Call WJP-AJ @ $6.00
XLF $12.73 $-1.49 - Financial SPDR *** Stopped ***Continued selling in financials too much for the sector ETF.
Breakdown trigger: $17, hit 10/6
Position: 2010 $20 LEAP Call WFS-AT @ $3.00, 11/13 $1.08
Leaps Trader Watch List
New Watch List Entries
TS - Tenaris
SMG - Scotts Miracle Gro
RIMM - Research in Motion
Current Watch List
TS - Tenaris
Tenaris is finally acting bullish once again. Solid resistance at $24 but that was tested twice in the last two weeks.
Tenaris S.A. (Tenaris) is a global manufacturer and supplier of steel pipe products and related services for the energy industry, as well as for other industrial applications. Its customers include oil and gas companies, as well as engineering companies engaged in constructing oil and gas gathering, transportation, and processing facilities. Its principal products include casing, tubing, line pipe, and mechanical and structural pipes. It operates an integrated worldwide network of steel pipe manufacturing, research, finishing and service facilities with industrial operations in North and South America, Europe, Asia and Africa, and a direct presence in major oil and gas markets. Tenaris is organized in three major business segments: Tubes, Projects and Other. In May 2007, the Company acquired Hydril Corporation (Hydril), a manufacturer of premium connections for steel pipe products. On April 1, 2008, it sold Hydril’s pressure control business to General Electric Company.
Breakdown trigger: $20
BUY JUNE $25 Call TS-FE
Breakout trigger: $25
BUY JUNE $30 Call TSW-FF
SMG - Scotts Miracle Gro
Scotts is defying gravity with a breakout to a new six-week high on Friday. They must be feeding their stock price a miracle grow food.
The Scotts Miracle-Gro Company (Scotts Miracle-Gro) is a marketer of lawn fertilizer, grass seed and growing media products within the United States. During the fiscal year ended September 30, 2006 (fiscal 2006), the Company divided its business into North America; Scotts LawnService; International, and Corporate & Other business segments. Its major customers include home improvement centers, mass merchandisers, warehouse clubs, large hardware chains, independent hardware stores, nurseries, garden centers, food and drug stores, commercial nurseries and greenhouses, and specialty crop growers
Breakdown trigger: $25
BUY 2010 $30 LEAP Call WOF-AF
RIMM - Research In Motion
RIMM said last week that even though they were not immune to the economic slowdown they expected new products to maintain their momentum. I doubt many business people are rushing out to cancel their Blackberry contracts in exchange for a dumb phone. Strong support at $40
Research In Motion Limited (RIM) is a designer, manufacturer and marketer of wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware, software and services that support multiple wireless network standards, RIM provides platforms and solutions for seamless access to time-sensitive information including email, phone, short message service (SMS) messaging, Internet and intranet-based applications. RIM technology also enables an array of third party developers and manufacturers to enhance their products and services with wireless connectivity to data. RIM’s portfolio of products, services and embedded technologies are used by organizations worldwide and include the BlackBerry wireless solution, software development tools, and other software and hardware. RIM operates offices in North America, Europe and Asia Pacific.
Breakdown trigger: $35
BUY 2010 $50 LEAP Call YKD-AJ
Breakout trigger: $46
Buy 2010 $60 LEAP Call YKD-AW
Dropped Watch List Entries
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