Nat. gas holds opportunities for traders

December 29, 20208 Comments

Natural gas is one of the most “whippy” assets I can think of when it comes to trading patterns. But, as everyone knows, with high volatility comes high opportunity for those with a keen eye and a faster trading mentality. We’ve traded natural gas a few times in our ValueTrend Equity Platform over the years. Sometimes we will use a Nat Gas ETF, and sometimes we use an equity. Truthfully, the commodity ETF’s for this asset class are not the ideal way to trade the commodity. The movement is so whippy on the spot price that the factors affecting futures prices seem to force diversion between the ETF’s and the underlying. So, I prefer the equities in most cases. The Horizons Nat Gas ETF is typical of this discrepancy – compare it to the spot price chart that follows. The main argument for buying this type of ETF is that it does appear to be bouncing off of support in the mid-$6’s.

Below is a chart of the natural gas continuous contract from CME group. Note the sometimes dissimilar patterns vs the ETF above. As with many of the securities that I look at on this blog, I have charts going back for years with my trading notations on them. This chart shows just a few of the formations I have traded off of in Nat Gas movements. We recently entered a couple of  Nat Gas biased energy stocks. The charts of the stocks had to be looked at individually, but we were inspired by the formations below on the commodity. Note the recent test of a neckline break after a double bottom formation. You can see my notes on the right side of the chart.  The Nat Gas market rose sharply after we bought, carrying the stocks with it.  Now we see gas retrace very near the old breakout point near $2. Long termed support seems to come in between $1.60 and $2.00 for Nat Gas. Support at the $2 neckline is likely to hold given the recent breakout and historic support near that price point.

Nat Gas seems to have its best months from February to June, according to Equity Clock:

Traders might consider looking to enter or add positions in Nat Gas as we see price near $2 during January. This might set us up for a positive move over the seasonally favorable period noted above.  If you prefer equities, note that there is a wide discrepancy in chart formations between the various gas producers. BHP Bilton just broke out to new highs. It has a broader diversification outside of energy, namely base metals. Hence the chart differential.

Artero Resources looks like its broken out of a bottom basing formation.

Cabot Oil & Gas has a chart that more closely resembles recent chart patterns of Nat Gas itself.

In Canada, most of the Nat Gas producers are integrated producers. There’s not much in the way of concentrated producers out there. But for size – the biggest is Suncor. Disclosure: we hold Suncor in our Equity Platforms. Suncor is currently contained within its bottom basing pattern. New investors will want to buy it on a test near the bottom OR a breakout through the mid-$20’s.

Conclusion

Nat gas may be setting up for another move. Seems to be getting chilly out there here on the mid-eastern side of North America (my friends in Florida were even complaining about the cold!). Perhaps a continuation of that weather pattern along with the approaching seasonal influences will add to the possible upside that the chart may be setting up for.

8 Comments

  • Tourmaline is a gas-weighted producer. The company reportedly has one of the best balance sheets in the industry, a low-cost asset base and a strong management team. Through acquisitions they have added an additional 76,000 barrels per day of current production. So would you consider TOU as a close gas play and if so should they benefit from upward moves in Nat Gas more than say a Suncor or others you mention which are less of a pure play?

    Reply
  • In your recent VT newsletter you mention “sectors” like “energy, mining, precious metals and agriculture”. Is there a website one can go to that identifies various sectors like those you mention so we can see which TSX or S&P500 stocks fall within those sectors?
    Thanks

    Reply
  • Thank you for the information Keith.
    By the way, the new look of the web site look amazing.
    Enjoy the rest of the holiday and Happy New Year to you, your family and your team.

    Marc

    Reply
  • Tourmaline is a gas-weighted producer. According to some, the company has one of the best balance sheets in the industry, a low-cost asset base and a strong management team. They have added an additional 76,000 barrels per day of current production. Might this be a name to play the Natgas opportunity you mention? Being more pure than Suncor or others, might a gas weighted producer grow more propotionaly to Natgas then one with significant oil in their operations?
    Thanks Daddyo

    Reply
    • And…yes, we own it. It is one of our gas-orientated stocks I noted in the blog.

      Reply
  • FYI: With the website changeover there is no “catcha” to verify we are humans. If an oversight you may consider reintroducing it.

    Reply

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