“The meek shall inherit the earth - but not its mineral rights.”
-J. Paul Getty

I have been very quiet and very small in energy for quite a while now, and underweight for the first time since the turn of the century.

My firm has been adding lately, however: I wouldn't be surprised if we look back at October 10th as a signal day for energy equities (as opposed to energy prices) in much the same way we now regard July 15th as being one for regional banks.

October 10th was the day we learned about some notable margin calls for some of the most vocal bulls; to me, it felt like even more powerful waves of supply came from the liquidation of a few funds levered to the space on the same day. We'll all learn who did what and when at some point in the future - but perhaps it isn't too early to trade from the long side with that point of reference, or even with a well-defined stop. Here's the XLE: I've circled the action on October 10th. Note the volume, as well.

It may be a silly comparison, at this point, but I keep thinking about that July 15th action in banks. With every passing day, it looks to be the low, even before its own commodity crisis(in exotic swaps) was so clear. I think the same could play out in energy equities - before ample evidence of slowing demand for crude oil and natural gas takes those commodities still lower.

Perhaps one of the most misunderstood facts about commodity markets -- despite its obviousness -- is that commodities, like natural gas, haven't collapsed over the past year. Instead, leverage on the commodity markets collapsed. Make no mistake: The past 12 months of natural-gas prices brings us all the way down to break-even. A notable natural-gas stock like Chesapeake (CHK), however, has been cut in half over that same time.

As for crude oil, it traded at $77 on October 10th of this year. Exactly 12 months before, it traded at $76. Its “plunges” have been widely reported and amplified, but its price is now just $1 higher than it was a year ago.

By comparison, Suncor (SU) lost more than half its value over that same time. Since trading barrels of crude began, it took 22 years to get to $60. It took 2.2 months to erase $60. (No word yet on Congressional hearings regarding windfall-loss rebates.)

Even excluding the case for a secular bull market in natural resources (which I believe began a few years ago) -- and if you wipe out the fact that the DJAIG Commodity Index is up more than 50% since this bull began in 2002, and if you focus only on the past year, in which energy markets have “cratered” -- there remains one simple fact (or one painful fact, depending on your cash position): Commodity markets weren't crushed. Speculators using too much leverage in them were.

So here's where it gets interesting for me, on the equity side. There are plenty of fundamental reasons to believe the commodity prices for natural gas and crude can work lower from here. We have plenty of inventory. My hunch, however, is that days like October 10th offer clues about a far more important inventory for energy equities that may now be in much tighter supply: Shares on the offer side.