XLE $70.80 -.18 - Energy Select SPDR
Support at $70 still holding.
The XLE is a group of 36 companies in the energy sector. Exxon is the largest component and Tesoro the smallest. See the complete list here.
Energy Select Sector SPDR Fund (the Fund) seeks to provide investment results that correspond to the price and yield performance of the Energy Select Sector of the S&P 500 Index (the Index). The Index includes companies that primarily develop and produce crude oil and natural gas, and provide drilling and other energy-related services. The Fund utilizes a passive or indexing investment approach to invest in a portfolio of stocks that seek to replicate the Index. The Funds investment advisor is SSgA Funds Management, Inc.
Breakdown trigger: $72.00, hit 8/04
Position: Dec $80 Call XTG-LB @ $3.00
FLR $71.36 - $4.96 Fluor *** Stopped ***
Fluor shot up to $83 in after hours trading on Monday and analysts could not say enough good things about Fluor. Fluor's profits more than doubled to $1.13 per share compared to 53 cents. Revenue from the oil and gas business jumped +53%. They raised full year guidance by 10% over analyst's estimates.
Tuesday morning Lehman upgraded them with a price target of $103 saying Fluor was the only E&C company with enough diversity across the various sectors. Citigroup cut FLR to hold from buy. Obviously the Citigroup downgrade carried more weight than Lehman's upgrade. FLR plunged to $67.10 on the downgrade. Although it rebounded the next day it was enough to stop us out at $69.
Breakdown trigger: $76, hit 8/04
Position: 2010 $90 LEAP Call LLF-AR @ $14.60, exit $11.30 8/12
PBR $48.72 -2.34 Petrobras *** Closed ***
PBR is in trouble. Despite monster investments by institutions and funds and being the number three deepwater driller on the planet there is trouble offshore. The nationalism flu has infected the Brazilian government. They are suddenly talking about forming another company to "manage" the offshore oil reserves. Currently anybody who finds the oil gets to control it and pay royalties to Brazil. The government is thinking about changing the rules to where Brazil controls the oil and pays companies a percentage of production. Instead of the individual companies reaping the benefits of their hard earned discoveries the government reaps the benefits and pays a fee for production through what is known as a production-sharing model.
I sent an email on Thursday laying out all the big players like Fidelity at 125 million shares and Marisco at 54 million and many others. Many of them bought into Petrobras with expectations of benefiting from the Tupi discovery. If the government announces they are taking away the rights to offshore oil these companies will leave in a hurry. I suggest we exit now that support at $50 has broken and avoid the rush.
Breakdown trigger: $50, hit 8/05
Position: 2010 $60 LEAP Call YMO-AL @ $8.20, exit 8/17 $6.30
UPL $64.26 -.28 - Ultra Petroleum
No change. The Ultra CFO was on CNBC last week and you would have thought he was a professional pitchman. Business is booming, days to drill a well have fallen from 60 to 22 over the last year and production is exploding. Unfortunately gas prices are imploding. Until gas prices find a bottom I would expect Ultra to be dormant but remain above support at $60. Our stop is $58.
Ultra reported earnings on 8/05 that more than doubled the comparison quarter on a 125% increase in revenue. Production rose +23% and the average sales price of gas was $8.06 per mcf. They get less for their gas because of their location in Wyoming. Once the pipeline is finished to the east coast their profits will again accelerate sharply. They have no downside risk with an active hedging program and no offshore or out of country assets.
Breakdown trigger: $65, hit 8/05
Position: 2010 $80 LEAP WSS-AP @ $13.50
APC $57.61 +3.83 - Anadarko Petroleum
APC was the second best performer for the week. There appears to be signs of an uptrend in process. A move over $60 would be strong. On Wednesday APC announced it had terminated talks with Iraq over development of the Luhais oil field in southern Iraq. They gave no reason for pulling out but the market rewarded the announcement with a strong gain.
No change. Stop at $49.
Breakdown trigger: $55, hit 8/04
Position: 2010 $70 LEAP Call YPC-AN @ $7.60
BHP $65.22 -.55 BHP Billiton
Still holding on support despite a sector drop on Friday that knocked -$4 off Thursday's high. On Wednesday APC announced it had terminated talks with Iraq over development of the Luhais oil field in southern Iraq. They gave no reason for pulling out but the market rewarded the announcement with a strong gain.
Breakdown trigger: $65, hit 8/05
Position: 2010 $80 LEAP Call LPH-AP @ $9.50
COP $77.66 -3.25 - ConocoPhillips
Surprise, Warren Buffett sold his entire 17.51 million share position in COP. The news broke on Thursday morning just as COP was starting to pressure resistance at $83. The news knocked $5 off Conoco's price. There was no mention of why he sold. Rumor has it he is afraid of Russia nationalizing Conoco's 20% ownership in Lukoil after watching the fight BP is having. Our stop is $76 so we may be out this week as well.
Earnings July 23rd, $3.50 per share
Position: 2010 $90 LEAP YRO-AR @ $11.35
ENER - $70.07 +7.08 Energy Conversion Devices
A strong move by ENER after catching an upgrade on Monday from UBS to a buy. The SunPower news on Friday just added to the sector gains.
Breakout trigger: $68.50 hit 6/16
Position: 2010 $80 LEAP Call KYU-AP @ 23.10
CRR $56.00 +4.25 - Carbo Ceramics
Zacks reiterated it had added CRR to its strong buy list on Thursday and that helped to power CRR to a strong gain. The rally in the solar sector didn't hurt either.
Breakout trigger: $48 Hit 5/12
Position: Dec $50 Call CRR-LJ @ $5.80
RIMM $128.80 -$4.95 Research in Motion
RIMM pulled back slightly as the market makers pinned it to the $130 strike on Friday but I believe it is only temporary.
There were some concerns that HSBC would ditch the BlackBerry for the 3G iPhone in what would amount to an order for 200,000 units. If HSBC took the plunge it could start a stampede. However, cooler heads may prevail. Given the 50% dropped call rate in fringe areas, the limited choice of carriers worldwide and no carriers at all in some countries. There are growing security concerns about the Apple platform and the text entry capability is proving to be less than optimal. There is also a lack of a scaled support and service structure. It appears the HSBC questions may be a tool to get some price breaks from RIMM more than a play to downgrade to the iPhone.
Another news item reported that the first phone based on the Google Android operating system would go on sale by early October on the T-Mobile system. A video appeared on YouTube showing a phone with the Apple style touch screen but also a flip open keyboard for easier test entry. Such a phone on an open source operating system and open network could be a major challenge to Apple and even the BlackBerry network. It would be a while before it gained anywhere near the acceptance of those two brands but assuming it had the Google power behind it there would be some stiff competition.
The various news items attracted a few sellers but Apple declined as well so who knows what was the real reason for the selling. I prefer to think of it as a buying opportunity.
RIMM is a combo play this time around to offset the extreme cost of the call option. We bought the call for $27.50 and sold the $110 put for $20.90 for a net debit of $6.60. In theory the call will continue to appreciate as RIMM moves higher and the put will continue to decline as it gets farther out of the money.
Breakout trigger: $125, hit 8/06
Long 2010 $140 LEAP Call YKD-AH @ $27.50