Update on Valero
July 3rd, 2006 by Grant in: Stock Thoughts
A couple days ago I wrote about possibly taking a short position in Valero Energy (VLO: chart) for a couple point scalp trade. With the open of the market this morning, it appeared that the energy sector was not ready to give up the momentum quite yet, so I held off taking up the short position.
The NYMEX futures markets are closed today, so energy stocks couldn’t rely on futures trading to stimulate direction.
Valero closed up $0.38 in a shortened trading day on roughly a third of the normal trading volume.
The daily chart still indicates a possibility of a retrace to fill a gap in the chart at about $63, so my short position is still up for consideration. When trading resumes on Wednesday, I’ll see if the increase in gasoline demand associated with a record number of drivers on the road this holiday weekend will influence the energy market.
On another note: a thank you to Owen Ross for pointing out the details of Tom Ward’s insider sales transaction at Chesapeake Energy. Mr. Ward has a forward sale agreement (details: Form 4: May 9th, 2006) with Chesapeake to deliver 1,617,530 shares on May 7, 2007 at a hedged price per share.
While I stand corrected in that Mr. Ward appeared to be returning $250 million worth of shares back into the market, it still shows that Mr. Ward is not explicitly comfortable leaving his shares in the market. Additionally, at the time at which Mr. Ward turns over his shares, the transaction will have to be absorbed by either the company or the market, either way, it’s something to look out for if holding shares when his agreement comes to fruition.
Additionally, this activity bears in comparison to the fact that Chesapeake is offering up public share offerings to the market to pay off debt. Considering the company has hedged gas contracts at a considerably higher price than current front month contracts, it would make more sense to use free cash flow off their attractively hedged production to pay off debt rather than offer shares into the market.
I still like Chesapeake as a pure natural gas play, however the potential for stock price appreciation is several months down the road in my opinion.
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July 5th, 2006 at 6:00 pm
Update on Trading Activity
The recent activity in North Korea had me thinking twice about taking a short position in Valero. I figured oil prices would climb (they did) and Valero would follow (it didn't).
While VLO did close down $0.42 today, I expect these latest geo-political happenings will throw a curve in the oil and gas markets for the rest of the week.
Chesapeake also finished down for the day as natural gas futures took a significant hit.
July 6th, 2006 at 9:05 am
Good analysis on chesapeake. If they would have issued the shares when the commodity price was higher, it would have been easier to take.