Western is a trade I executed yesterday and immediately reacted, but I don't think it's anywhere near to being done. I shorted the stock (actually bought puts) as the stock hovered above $26 and have been rewarded already with a move to close to $24. With the higher open expected this morning, I think you can still get a reasonable short-term short position going here, looking for another dollar on the down side.
All of the mid-continental refiners have benefited enormously from a Brent/WTI differential that refuses to collapse, even with the Seaway pipeline reversal and other slow measures to remove glutted crude oil from Cushing. With the relative success of Iranian oil export sanctions in Europe, Brent oil has continued to show relative strength to U.S. crude and mid-con refiners that can advantageously use West-Texas-priced crude while selling Brent-priced gasoline have increased margins and profits again through 2012.
But they've gone too far, too fast. The crude curve of both benchmarks makes clear that this refining margin bonanza won't last forever, even if it's already lasted longer than most analysts thought it would. And I believe that refining in general is under enormous long-term pressure and small respites from artificially strong crude spreads are merely short-term morphine to an industry in deep trouble.
Here's another short-term trade for you: Baker-Hughes.
BHI will report tomorrow before the bell and my guess is that they will report poorly. The second-quarter has been miserable for crude prices and nothing has been more closely leveraged to the marginal price of the crude barrel than the offshore drilling stocks, particularly the ones engaged strongly in the Gulf of Mexico. Shares of BHI have run ahead of this "known unknown" for the past several weeks, sliding from a high of more than $44 in May to a little less than $38 late last week.
My hope was that the stock would be somewhere around $40 for tomorrow's open, but other traders seem to be playing this dodge with me and looking for a bad report to buy. With crude prices having bottomed for the year and with Brent prices well above $100, drilling scheduling and margins are looking up, even if they won't be reflected in this report. I'll either look to buy BHI on a pullback during the day today or look for a big drop after their number comes out tomorrow morning to wade in.
This is a trade, if well timed, that you can hold for the medium term or just use for a quick flip.
If you like these ideas, please remember to follow me on twitter @dan_dicker. I try to give all my best ideas to RM in columns and on columnist conversation, but sometimes the markets just won't wait and once in a blue moon I'll share what I have there. The Real Money site has a real-time feed of the Tweets of all the contributors if you'd rather do it that way.