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Wednesday, May 23, 2012

Natural gas

I have been hearing quite a bit of talk about natural gas lately.  It has been in a free fall for quite some time.  From what I have read, they have pretty much stopped all drilling and have shut down some production.  This should mean that natural gas prices have bottomed or are in the process of doing so.  Lets take a look at a popular natural gas ETF UNG.  Here is the weekly chart.

The drop was so steep that any longer term MAs on the chart kind of screw with price.  As you can see the weekly chart has turned up a bit and with some big volume.  This is the biggest rally on the chart and is a very good start to making a bottom.  Here is the monthly chart.

That was one extreme move down.  There were even blue bars on the monthly chart.  Obviously the price is
not going to zero and these charts really do look pretty good as far as making a bottom.  Just realize that making a bottom is not the same thing as trending up.  There could be a prolonged period of base building here.  There clearly was excess supply and even with cutting back in production it may take a while for real demand to overtake supply and push prices up significantly.   That is where the problem comes in when trying to invest in this area.  I don't see any of the related ETFs that look like possible long term vehicles.  They all seem to be futures related and have issues with tracking and slippage.  Holding any of these things long term may not give the desired returns.  If you can't do futures, it is pretty tough to do.

So if it is hard to invest in natural gas itself, how about some stocks.  Here are some charts of the bigger players I know about.

CHK has issues beyond natural gas prices with the CEO.  It appears that RRC is the only one of these stocks that did not get killed lately.  Its weekly chart is even trying to turn up with the 6 week MA crossing above the 18 MA.  Lets take a look at the monthly chart.

The 18 month SMA is rising, but the price bars are still neutral and the 6 MA is sloping down somewhat.  There are some monthly bars with lower tails indicating support down below.  The biggest problem with this stock is the lack of any real upside momentum.  It seems to have good support, but that does not mean it is going to appreciate in price anytime soon.  I don't see anything in the volume pattern that is especially bullish either. 

There is no clear sign that there is sustained upside in natural gas prices yet.  The extreme low prices should cause more people to use natural gas over other fuels, but there probably is some significant conversion time needed in many instances.  Any short term price hikes, could be met with some increase in production keeping a lid on price.  Most of the stocks have been crushed and need to repair themselves before they could sustain an uptrend.  It looks like there is the potential that long term investments in this area could be dead money for an unknown amount of time.  However, there could be some good swing trades in some of these beaten down stocks as they try to make a bottom.  If anybody runs across some better looking natural gas stocks, please let me know and I will put out another post with the charts.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.