serious question preoccupying ; CAN NATURAL GAS BREAK OUT?
Is Natural Gas About to Break Higher? 10 comments
by: Thomas MacLeod July 20, 2009 | about: CHK / EEP / GAS / KMP /
OIH / SE / SRE / UNG / WMB
Thomas MacLeod picture Thomas MacLeod
thought you may find it relevant..
Do equity markets lead commodity markets? Or perhaps more precisely do
commodity equities lead the underlying commodities themselves? Our
experience suggests that commodity equities lead the behaviour of
commodities. Towards the end of last year we noticed that oil and gas
services stocks bottomed even in the face of a plummeting oil price.
This suggested to us that the downside in crude was very limited and
that one should be looking at buying into the falling crude price.
We now find a similar situation arising with natural gas and natural
gas stocks. Oil and Gas pipeline stocks such as Enbridge (EEP),
Williams Co (WMB), Spectra Energy (SE), and Kinder Morgan (KMP), now
appear to have formed solid bases and more importantly they remain
virtually unchanged this year even when natural gas itself has fallen
by some 40%.
More compelling from a fundamental perspective their valuations do not
appear to be demanding. So there are two ways of playing “natural
gas”. One can buy the underlying commodity itself (either via futures
or the ETF UNG) or one can play the next best thing – natural gas
stocks.
However, if one was somewhat bearish on natural gas itself why not
consider pipeline stocks or other natural gas plays (like Chesapeake
(CHK), Nicor (GAS), or Sempra (SRE))?
Of course there is another option and that is oil and gas drillers/
services themselves (OIH). Which option will prove to be the most
profitable? Of course only time will tell!
We have seen finer technical patterns before, however, from a long
term perspective the three charts above appear bullish enough for us.
They appear to have done enough work to establish a strong base from
which we see material upside. This action should drag natural gas
higher.
The foregoing "analysis" may seem rather simplistic but often that is
all that you need especially when you have time on your side.
Disclosure: Long UNG, CHK, KMP, SE, OIH
