Holdings Watch: July options expired yesterday and I was glad to put that ugly month to bed (at least the second half of it). In recent months, I've worked to get the scud count (those options that expire worthless each month) down to two or fewer positions. With the sudden decline in the groups of the last two weeks that didn't work out this month. I added into weakness anticipating a shorter duration swoon in the energy sectors than what occurred and some of those adds were front month contracts. Here are the closed and expired positions this week.
On To The Wrap….
1) Energy Stocks Take A Break … The E&P, oil service, and Majors all fell on the week due to lower prices (read on) and the ATM effect. The groups have done incredibly well and in a fit of fear that profits would evaporate if they didn't change them out for bottom fish candidates in the financial sector. The groups were not expensive before the decline with many of the stalwarts in the E&P and Service groups trading below their long term median multiples. I'd also add that (SLB)'s beat and positive sentiments about the rest of 2009 was the kind of start to 2Q earnings we were looking for.
2) … As The Commodities Dip.
- Crude oil fell $16.20, (11.2%) its biggest one week loss in terms of dollars since NYMEX began trading futures contracts in 1983. The rapid sell off was attributable to a combination of renewed concerned about the weak U.S. economy and its impact on oil demand, a rare (at least lately) build in crude stocks prompted by anomalously high imports, and peace-like noises in the middle east. The last two items won't last. The first is a subject open for debate and I'll more there in tomorrow's post.
- Natural Gas also took a tumble also falling exactly 11.2% (how odd) and looks to be oversold here. Traders on the long side have done well in the past past several and selling mounted as the commodity fell through its trend line. An unexpected large build last Thursday only exacerbated the decline and if that kind of injection build becomes the norm in the next few weeks (doubtful) you have to think that gas will fall further, at least until a storm makes its way into the Gomex.
- Coal was not left out in the price decline with the higher BTU east U.S. coals falling 10% on the week. No hard and fast reason for the drop; it just comes on the heal of a substantial rally and is trading with the sentiments of oil and probably even more with that of natural gas.