It’s another occasion to post Thomas Lorimer’s print that reflects current conditions. Without a firm buyout/bailout of Lehman or any concrete rescue proposals for Freddie Mac and Fannie Mae, despite a successful debt sale, stocks quickly gave back all Friday’s gains and then some. So the financials induced cloud over the market from Thursday’s post dumped rain today on extraordinarily light late summer volume. Breadth was as poor as you might expect. There have been several commentaries in the last few months about the energy carry trade, most recently today in the Financial Times.

Oil has started to rise leading to plenty of comments concerning supply/demand and the oversold state of the sector. iShare Energy Index (NYSE: IYE) has bounced 6.3% the last two days and the futures are pointing higher today. The chart shows a break of the short term downtrend line and momentum is pointing higher. So is this the proverbial bounce everyone has been looking for? More than likely the answer is yes. However, there may be more at work here than just a bounce. Companies like XTO Energy (NYSE: XTO) are rumored buyout candidates showing some M&A activity could be on tap. It would only make since if the price of such companies have fallen 40% or more in some cases. Taking into account the discoveries in natural gas the values seem cheap looking longer term than next quarter.

While oil is the driving factor in how many of these companies are viewed natural gas, pipelines, etc. are part of the valuations going forward. Fundamentally speaking there is value here for the buyer who is willing to hold longer term. The big question is will the major oil companies like Chevron (NYSE: CVX), Devon (NYSE: DVN), Conoco (NYSE: COP) and Exxon (NYSE: XOM) start acquiring these type companies? Seems like the logical thing would be to acquire on the cheap companies that have proven wells along with new finds without the risk of exploring and drilling. It could be time to dig into the sectors stocks and start looking for value like XTO Energy (NYSE: XTO) and Chesapeake Energy (NYSE: CHK). Something worth watching as this develops further.

Like last week, oil analysts got more wrong than right in their petroleum forecasts. Crude oil stocks inventories shot up 9.4 million barrels last week, catching the bean counters by surprise. Oil patch watchers had forecast a much more modest 700,000-barrel increase and maybe, at the outside, a 1.7 million barrel uptick. Now, with nearly 306 million barrels on hand, crude supplies are average for this time of year, according to the U.S. Energy Department.

As reported at Bloomberg.com, George Soros purchased an $811 million stake in Petroleo Brasileiro SA (NYSE: PBR) (better known as Petrobras) in Q2. The Brazilian oil company is now the largest holding in his fund, amounting to 22 percent of the total $3.68 billion of stocks and American depositary receipts held by Soros Fund Management LLC. Of course, crude oil has taken a dive in the last month, helping to push Petrobras down 28 percent since his purchase and costing Soros's $235 million. I guess we would all like to be in a position to lose nearly a quarter billion dollars and still be "OK". Then again, if Soros holds tight, he could end up doing well.

While the timing for Soros may not be perfect for this trade, a number of other people are also betting on Petrobras. As quoted by Ricardo Kobayashi from UBS Pactual SA: "Petrobras has something that other oil companies don't have: oil - lots of it and they're going to find more. If you can buy now and hang on, if you have the staying power, it's great.'' As written in a previous post , estimates have the Tupi-area fields in Brazil costing between $200-$240 billion to develop, in part due to deepwater rigs causing $600,000 a day to rent, forcing Petrobras to look for capital. Yet the cost might eventually be worth it given that the offshore fields are expected to hold up to 50 billion barrels. Petrobras has already leased approximately 80% of the deepest-drilling offshore rigs (see post). They are also buying new rigs and production platforms. If oil prices stabilize, companies to consider would be Transocean (NYSE: RIG), Nobel (NYSE: NE), and Nabors (NYSE: NBR), each of which have sold off with lower crude prices, but each of which are also near some key support levels. For longer-term investment, some capital-intensive E&P oil companies such as Exxon Mobil (NYSE: XOM) should do well, even without direct investment. Of course, this all requires crude oil to stabilize, probably stay over $100 a barrel, and potentially continue its march higher. If not, you may be experiencing the short-term returns of Soro, and not necessarily the longer-term ones.

bullbeartrader.com

Commodities have fallen into Bear Market territory, down 21 percent as measured by the S&P GSCI Index (see Bloomberg article). Amazing, the bear market defined 20 percent or more move down has occurred since the July 3rd highs for the index, just a little over a month ago. Specifically, gold is off 22 percent from its recent highs, silver is down 33 percent, platinum is down 36 percent, and crude oil has fallen 23 percent. The move is certainly what you would call a serious short-term correction, and starts to make you wonder when and if a snap-back is going to occur, even if the move is just temporary. Nonetheless, the weak reaction of crude oil to the recent military issues in Georgia certainly makes one suspect that crude oil wants to go down further. It will be interesting to see how this plays out. The $110 and $100 prices should be the next interesting decision points for crude.

bullbeartrader.com

Sniffing the Wind — Strong Scent of Retreating Crude Over-Powers Stale Smell of Bear Oil: A Slip, A Dip or a Dive? This isn’t the first dip in oil prices we’ve seen in recent months and weeks, but it could be real news…for oil and for the US stock market in general. Why the rally today? The oil price declines are taking hold despite a passing hurricane and ongoing Iranian issues. The sell commodity plays and buy mainstream stocks is a trade that’s gaining more traction. Add a slightly better than expected ISM number, antsy trading desks and hedge funds then conditions are always ripe for a short squeeze. As to the Fed? Well, a gazillion pundits, including me, had the Fed’s actions called right which means it was all a little too obvious. One strange comment after the Fed decision was as follows: After what has seemed to many investors to be the “longest year”, stocks have been going through a volatile period which some interpret to be bearish. There are still many analysts who are quick to label the current market phase a temporary pause on the way to a bigger stock market cascade. Contrary to these expectations, the market tape is sending a different message as we’ll establish in this commentary. A Bone to Pick with Boone T. Boone Pickens' energy plan falls short. He has to weave what he views as ‘political realities' into a comprehensive plan from which he can also profit. While, I believe his highest goal is to develop a plan which best serves the longer term economic and energy interest of the country, I think he has not properly factored in some shorter term ‘economic realties' which could short-circuit his scheme, well-intended as it may be.