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Msg  35275 of 75684  at  7/10/2008 2:45:24 PM  by



Please read the desk for important Snitch updates. Desk will be updated daily from managment.

Snitch Street: CHK'mate?
Jul 10 2008
Chesapeake Energy shares have been plunging since last Wednesday when the company announced a joint venture and successful early drilling. This was one of the best pieces of news in CHKs history, yet the stock in just four trading days is now down well over 20%, and at this frantic pace to the downside; no end in sight. We have been one of the largest holders of Chesapeake for many years. This price action has been the most disappointing price action we have ever experienced in our trading lives. Sure we have had many stocks make bigger moves to the downside, but as most know CHK is literally 98% of our ENTIRE portfolio. Yes. We are up a lot since we bought CHK many years ago at prices that were dirt cheap, so why the disappointment? The disappointment comes via Chesapeake continues to lose on hedges, but when the natural gas commodity suffers; CHK suffers also when hedging is supposed to protect commodity risk. This is very disturbing, because CHK is trading as if it has more risk than its peers when in fact its opposite. The bottom line here is that CHK's hedging program has never benefited the company for investors to notice. We have always loved their hedging program by theory, but one must question if the theory is flawed. To lose over 16 pts in four trading days, because natural gas has a little correction is absurd. Further, CHK is down well over 20% when the commodity is down a little over 10%. This is where the trouble lies. CHK didn't move enough to the upside when NG was closing in at 14, yet a 1.50 sell off in NG trims the stock 23%? So, what are we to do? We will visit headquarters and try to get into our friend, Aubrey's brain. The offerings have to stop. This is a MUST! For those who want to ignore this, please read a Random Walk Down Wall Street. Dilution creates a death spiral effect on a stock. This is investing 101! Its a guaranteed way to suppress or kill a stock. You can say all you want that they have to, etc. Instead of finding other ways; the street has had enough of these CHK offerings. Wasn't this the year that CHK offerings were to end as promised? Instead CHK is on pace for quite the opposite. That is record amounts of dilution. We refuse to believe CHK lost 16 pts and counting due to a slight pull back in NG. Rather we firmly believe this offering leaked out last week. Consider the best options traders in the world were buying options that CHK would go to 55 this month! These options that looked like a joke to buy for a few pennies are now the single best CHK trade we have ever seen. These were bets made on dilution. Why such a sell off for this particular offering? Well, imagine CHK receiving close to 2 billion dollars in this joint venture deal they made last week, and the deal comes with something much sweeter! The partnered company has agreed to pay for HALF of the Haynesville expenses that CHK is exposed too! Take a second, and digest what we said. 2 billion paid to CHK! Half of CHK's expenses are being paid for by their partner for the Haynesville exploration! That deal is beyond a home run. It is gold. CHK's dream comes true. You get to drill aggressively your biggest potential play in history AT HALF THE COST! This deal right away was a sure sign the days of CHK debt and dilution were near an end. The street initially loved it sending CHK up 10% at one point in the day............And then....The sell off began where longs had no idea what was to come. That was the current sell off that has hit some longs well over 20% and counting. Where there is still no sign of a relief rally or bottom. Longs continue to ask, how can a company's prosperity take years to achieve on Wall Street and minutes to vanish? Even worse, after probably the best news CHK has had in over a decade. We are not exaggerating. Last Wednesday's news was remarkable, but it backfired on Wall Street. So, what is going on? What should longs do now? Should we short? Or should we sell and lock in profits before we lose a years entire gains in literally less than a few weeks? This has been the mother of all sell offs this year in ANY single stock. YES! That includes the financials, homebuilders, etc. Laugh all you want. This has been the mother of all sell offs. You name it. Nothing compares to this one. Well, you may say this is only down 23% from its highs of last week. Understand this very carefully: NO ONE, but a select few saw this coming. NO ONE saw it coming (but, a select few professionals DOCUMENTED) saw this coming. Thats why it is the mother of all sell offs this year. Housing and financials; come on, EVERYONE saw that coming, and the fact that the housing and financials have been a steady bleed gave investors THOUSANDS of opportunities to get out. However, this CHK sell off really didnt give many much of a chance to get out. It is literally trading as if CHK is a financial company ready to go under water. Folks, this stock was at 74 6 days ago!!! And right now it is fighting for its life EVEN AFTER a 20% sell off. Even the beaten up financials and housing stocks would get relief rallies after sharp declines, but CHK cannot even muster a relief rally right now. Oil goes down ONLY 10 dollars, and CHK a NON oil company decides to lead the energy sector with a major sell off? What's the problem?

First, there is no problems. ZERO! What happened was that there was too much excitement in the stock. Unfortunately, a lot of fast money amateurs in the stock. This is what ALWAYS happens when you have unseasoned investors who think you can make fast money without investing. They come into an exciting story like CHK. Of course, always late, and they want to make money like the investors only to get burned time and time again. This is actually VERY healthy for a stock. Not to the extent of a 20% sell off, but you do want a sell off to scare off the fast money amateurs. This attracts more serious educated long term investors. For some odd reason, amateurs/day traders do not understand the concept of investing is not guessing on price movement. Investing is believing a story with opportunities will eventually come to fruition. However, back to the point: There were way to many fast money traders in CHK last week, and they jumped in after the Haynesville news. This is where the big money/smart money came in and shorted this stock to levels we have NEVER seen and probably NEVER will ever again in such a short time frame. One seasoned trader even bought (now think about this one) 20,000 July 55 Put Options!!! Folks: 20,000 contracts that CHK would touch 55 dollars this month!!! How do you bet that much that not only will a stock go down, but one of the best performing stocks of the year will go down 20 points within a few weeks AFTER the company (CHK) reports their best piece of news in years. Maybe decades. That was a trader who knew the stock had run up with a lot of amateur money, and that it would take a few scares to get the fast money out, and once the fast money leaves; the trader knew this stock would be in a free fall. Top that with no doubt knowing the offering news, and you get a trader who bet a lot of money on something that looked like an impossible winning ticket, but instead the trader made more in 5 trading days than even the best CHK investors will in a life time. So, what are we saying? Nothing happened to CHK. What happened is that losing money got involved in CHK. By losing money we mean people who have been losing a lot of money, wanted to make a quick buck, so they came to CHK, and the professionals, especially the shorts know that these investors are the easiest investors to scare off. What we are saying is that CHK became a trading tool, and thats why the wild swings, especially to the down side. Look anytime you have a stock go down 20 points on GREAT news, and the stock even at the current high levels was extremely UNDERVALUED (at 74), it is a market story versus a company (CHK) story. The bottom line is has CHK's fundamentals changed? Yes. It has! Its even bigger and better.

Here are reasons why CHK will go much higher than the 57-58 range. Keep in mind we are putting a SIGNIFICANT BUY on CHK today at these levels. We have never been wrong with this stock.

LNG. Liquefied natural gas is STILL not making it to the US, and this alone will keep demand for natural gas. This fact in itself is really all you need to know for the next 12 months of natural gas. This may not translate to higher NG prices from here, but it certainly gives support to firm prices. Remember, all you really want is firm prices above 8 dollars for CHK to make a run to well above 100 dollars long term.

Haynesville, Haynesville, Haynesville. We told you this a very long time ago. This play by itself is big enough to make 3 medium sized natural gas companies. Think about that for a second. In other words, its as if CHK acquired 3 NG companies for almost no cost when its said and done!

Without Haynesville CHK is a 100 dollar stock! Yes INDEED! Do not need to be a rocket scientist to do the math.

Now understand this: Chesapeake has found the mother of all natural gas fields probably in the history of this country. Actually, we will say it now: It is the greatest find in American history in natural gas. Actually, by a mile. Now imagine that CHK is a dominant player there. Lets keep this going: Now imagine that they have made a deal, which gives them 1.65 billion now, AND their partner agrees to pay 50% (half) of all CHK expense drillings in Haynesville. Folks, its like finding a gold mine, and someone tells you that they will pay you to find the gold mine. Understand this point very carefully. This deal takes RIDICULOUS SUBSTANITAL costs and risks off the table for CHK. Chesapeake now has HALF the risk of exploring in Haynesville. Its obvious that Haynesville appears to be risk free. It is a home run, but the one thing one could argue on the negative side: COST & RISKS! Now CHK has cut those SUBSTANTIALLY! This deal tells you EVERYTHING you need to know about Haynesville. It tells you that Haynesville is the real deal and then some, because no partner would ever take such risk by paying someone (CHK) ridiculous amounts to explore their (CHK) own play! Its like having the winning numbers to a lottery that hasnt happened just yet.

Chesapeake continues to bring in cash, raise cash, and upgrade their credit. This is very important as CHK continues to prove to the S&P what a great cash cow they are, and YES Joe Allman, fiscal responsible.

Most importantly, instead of panicking, always ask yourself why the sell off? Did anything change? Is the company making less money now from its resources or more? Folks, its not hard to figure out. You KNOW the CHK story has only gotten MUCH better by THREEFOLD, and a 20% sell off? Thats what you call professionals taking advantage of fast money day traders who want to make money without working for it. The quick and easy way, and that is the one way we will guarantee you to fail every single time when its all said and done.

CHK is a SCREAMING buy. This stock will be well over a 100 long term. And do not forget our prediction of many years ago. We said it here first, and now people are talking about it:


Disclosure: Vegas Sports Entertainment continues to hold and buy Chesapeake Energy and discloses. VSE has held onto CHK for many years, and has added on significant dips. Chesapeake Energy (CHK) consists 98% of VSE holdings!!! When VSE said they went all in many years ago, they did and disclosed. VSE continues to stay "ALL IN" on CHK energy and will continue to update their sentiments with CHK. VSE does not recommend investors to ever margin or day trade. However, VSE does day trade very successfully via their VSE professional funds. These includes commodity and currency trading on the long and short side. VSE plays the options market. This is part of the 2% aside from the 98% in CHK. Basically, anything that happens outside of CHK is not a significant factor in VSE fund investments. WE DO NOT RECOMMEND VSE'S AGGRESSIVE ALL IN STYLE OF INVESTING. We actually recommend the exact opposite with diversification. CHK was a once in a life time opportunity, and VSE had to go "ALL In." Keep in mind VSE is VERY familiar with CHK company and management.

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Msg # Subject Author Recs Date Posted
36352 Re: NEW SNITCH INFO azpecsman 0 7/18/2008 4:59:26 PM

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