Tuesday Wrap – Short Covering Anyone?

Crude Rebounded Mildly… CNBC attributed it to end of contract short covering so I’ll leave it at that since no explosions, rebels, or opecies made headlines this afternoon. Whatever the cause, the new target to break is $57 on the December contract. If we get that tomorrow, and we might, with inventories than a lot of fund managers have got to worry about holding the group as an overweight position much longer. The damage to 4Q earnings is increasing with each passing day below $70 let along below $60 per barrel. I think we get a pretty good sell off in the morning prior to inventories but nothing matters until after them except earnings specific stories (and even that can be overcome by a big swing in oil prices).

…And Natural Gas Took A Breather After Diving The Last 3 Sessions. Lifted a bit on colder expectations for the weekend and early next week in the Rockies and the northeast. Still looking for a 20-25 Bcf injection this Thursday. Have not seen consensus but will post when I do. The $0.14 rise in the December contract was due after a three session drubbing that left gas 10% lower. I’d bet on flat to slightly higher trading into inventories.

Investors Proved Their Willingness To Overlook Fundamentals For A Few Hours. XOI/ XNG/OIH all rallied with oil. The indexes got back most of what they gave up yesterday while oil came no where close to recovering and actually ventured into new low territory

• SU outperformed its peers and oil and remains my favorite put or call as a proxy for oil.

• Until the rally, the street was snubbing VLO‘s seemingly positive results and shellacking shares of HOC which fell over 2% before closing flat. After oil closed up $0.23, all red stocks had turned to green.

• XOM, which for a rare change, fell with oil was more than happy to close up more than the products it sells and this on a lackluster DJIA day.

• EOG – see this morning’s comments but it sold off pretty hard prior to the crude rally. Probably a pretty good entry point as it’s been trading with crude more than natural gas but I’ll wait to pull the trigger until after oil inventories.

• The rest of the gang was pretty disappointing with modest declines yielding to modest gains over a 30 minute period just prior to the close of NYMEX.

DAYS LIKE TODAY PROVE THE ENERGY GROUP’S VULNERABILITY. The capitulation in energy stocks was about $0.30 away on oil ($57) and the slide in names like EOG, VLO, and XOM prove it.  But for the grace of short covering, many energy analysts would be receiving calls from their research directors asking them how much they like their jobs and how they feel about bonuses since they never seem to change a rating in response to anything other than a press release. The last 4 years of rising commodity prices have given these analysts, and their clients, a false sense of security. They repeat a complacent mantra of “just wait, it’ll go back up, buy the dips”. Sooner, not later, I believe they will be the dips.

Busy day tomorrow with earnings from stocks of interest of: DVN, HOC, NBL, PKD, PTEN

Other energy that I don’t really have an opinion on but could say something informative include: CNQ, DNR, PXD,PVA, SM, SUN, WLV
GLTA through inventories tomorrow. Should be a pretty “head fakey” trade so be careful. Gotta go trick or treat.