Natural Gas

Discussion in 'Stock picks and trading strategies' started by Technical Alchemist, Feb 26, 2008.

  1. Technical Alchemist

    Technical Alchemist forum leader won penny contest 13x won weekly contest 12x

    This sector has had a heck of a run within the last 30 days. I keep raising my limit buy on EOG and am chasing the stock at this point. I've learned not to fight the trend and it appears Wall St. is willing to take nat gas higher as it has also had a great run recently. Could this be the story of 2008, much like oil was in 2005-2007? Should we expect a drastic drop off when Spring is nigh?

    I've since raised my limit buy on EOG to $96. I'm interested to hear if you all think nat gas is overheated and due for a pullback and if my entry price is a safe bet based on TA and the price action in the commodity.

    Thanks in advance.

    PS: if there is a better play on nat gas other than EOG I am interested in hearing your opinion.
     
  2. theponi

    theponi New Member

    MadCow,
    Have you looked at CHK? I've been following this about 9 months (I believe it was featured in Smart Money Magazine in September 2007, which is where I got turned on to it) Its had an incredible run over the past 2 weeks right up through earnings. If you read into earnings they actually beat estimates, once you take out one time charges. Company has been buying/leasing land and increasing production. CEO has been buying a good bit of shares and management seems to be solid. If you have the time to do some DD you should be able to find whatever you need. I hope this info helps. Just an FYI...I have owned this stock in the past but exited my most recent position Friday and am also looking to get back in.

    The Poni
     
  3. Technical Alchemist

    Technical Alchemist forum leader won penny contest 13x won weekly contest 12x

    Yes, I am quite familiar with CHK. It was one of the first stocks I ever owned, back in mid to late 2005 during all the Hurricane Katrina mania I made quite a bit of money off of it. However, my understanding is that EOG is the most exposed to the spot price of nat gas (can anyone corroborate this?) because they are not as bound to contracts like CHK is and with the recent run of nat gas from just over $6 to nearly $10 in the last 6 months my thought process is that EOG would be the most likely to have an upside surprise. Thoughts?
     
  4. Technical Alchemist

    Technical Alchemist forum leader won penny contest 13x won weekly contest 12x

    What a difference a couple years makes. Nat gas went from a darling to one of Cinderellas ugly sisters.

    I was thinking of ways to play this and I recall reading a statistic that said the USA is a net exporter of refined fuels including nat gas. Basically we import oil, refine it into gasoline, heating oil, and other distillates and ship it down to South America and other emerging markets. As poorly outdated as our refining infrastructure is in this country it's still worlds ahead of what they have in emerging markets.

    With that being said the low gas prices make the producers like CHK a poor choice to play the shale gas revolution unless you buy one of the royalty trusts. On the other hand, you can play the exportation of natural gas. A couple names I like in this field are Chicago Bridge & Iron [CBI] and Cheniere Energy [LNG].

    CBI manufactures LNG storage tanks and LNG liquefaction and regasification terminals. They provide other services to the energy sector but this is probably their most levered component to nat gas.

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    LNG primarily engages in the collection and distribution of liquified natural gas (aka LNG). They own and operate the LNG receiving terminals and help get the LNG on the tankers for cross-sea export. This is a pure play on overseas demand for LNG.

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    On a side note I've mentioned in other threads I'm playing the excessive shale gas production via select royalty trusts and the midstream players. The trusts like ECT pay hefty distributions as do the midstream players like EPD and EEP. The nice thing about the midstream pipeline players is they are a play on volume of gas not the price of the commodity. The more is produced and needs to be shipped the more they can charge and obvious that should flow to the bottom line and result in higher distributions to unit holders.

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    Last edited by a moderator: Mar 22, 2014
  5. useless

    useless Member won weekly contest 18x

    What about something like UNG? funny that you went back and found this thread. brutal, but these are attractive if it turns around

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    Last edited by a moderator: Mar 22, 2014
  6. Technical Alchemist

    Technical Alchemist forum leader won penny contest 13x won weekly contest 12x

    Reduce, reuse, recycle. Just trying to keep the forums tidy and uncluttered ;).


    Regarding UNG, my understanding of commodity funds like these is that if the futures curve is in contango, forward futures price is higher than expected futures spot price, these funds get crushed on the roll because the roll yield is negative when they roll over the contracts from the prompt month to the next month (I believe in the middle of the current month). These funds could make money if the futures curve was in backwardation because they'd theoretically have a positive roll yield as futures prices increased through time to meet the expected futures spot price. However, a lot of the futures markets participants know when these funds execute their rolls so they simlpy front run them to scalp a few dollars ahead of these very large movements of the funds.

    I'm aware of UNL and USL which are supposed to mitigate this problem by spreading the contracts across 12 months so the fund is only rolling 1/12th of its portfolio each month but I have not studied it enough to verify if it mitigates the problem or not.

    I still think the best way to play the shale gas revolution is through the distribution of gas via midstream firms and the LNG infrastructure and distribution. I still like the royalty trusts due to the large cash payouts. ECT looks beaten down because it's a low volume equity security (less than 100,000 shares a day) and only two analysts cover it. One analyst from Oppenheimer issued an underweight rating and I suspect a bunch of Oppenheimer clients sold out driving it much lower than the production and payouts project it should be. Similar thing happened to SDT back in October and look where it is now. I'd be a buyer at these levels. Once it announces a pay out of 60 cents in February it should ramp back up as the current yield would be over 12% at these levels which is simply a market inefficiency. Most royalty trusts are not yielding more than 8% or 9% so you can see where ECT's price needs to make up ground to get to this lower yield.
     
  7. useless

    useless Member won weekly contest 18x

  8. Technical Alchemist

    Technical Alchemist forum leader won penny contest 13x won weekly contest 12x

    The more I look at natural gas the more this looks like a capitulation sell off. I'm not saying this is the absolute bottom but 12 long red candles out of the last 15 days and with the oversold indicators screaming tells me the bottom is nigh. This almost looks like it's setting up for a DeMark's Sequential.

    http://stockcharts.com/h-sc/ui?s=$NATGAS&p=D&yr=1&mn=0&dy=0&id=p05020434569

    If you were looking to initiate a longer term position in a nat gas levered play such as CHK, DVN, ECT, or for the more risk seeking ECA this could be a good opportunity to get in while the fear is close to its peak.
     
  9. Blaine Tarr

    Blaine Tarr forum leader won penny contest 24x won weekly contest 20x

    Rubber-band snap backs forming on those charts fwiw.....

    :beerglass::beerglass:
     
  10. useless

    useless Member won weekly contest 18x

    Well, it was under the bottom bollinger band.. get a doji or a inverted hammer could signal the bounce. question is will it rise or go flat.
     
  11. Technical Alchemist

    Technical Alchemist forum leader won penny contest 13x won weekly contest 12x

    I'm not sure I understand what qualifies as a "rubber band snap back" as I've never heard that lingo before. I'm familiar with oversold bounces, climax selling, DeMark's Sequential etc. What exactly has to occur to qualify for this particular set up, BT?
     
  12. Blaine Tarr

    Blaine Tarr forum leader won penny contest 24x won weekly contest 20x

    Very similiar, I just watch for downward speed up and attempt to guess bottom based on volume and price action. If we get a little sideways and more volume, it should pop quite well.

    For example, UNG, increasing volume as it speeds up to the down side. I assume they will defend 5.00 hard like they did with BAC a few weeks ago. Mutual funds don't want that price below 5.00..... As long as it holds UNG should be a solid bounce play. Always use a stop though. Cause if it drops below 4.75, who knows where the bottom could be. The key is just noticing that the downside speed-up has "caught" if you will, and buyers are willing to chase it back up. I think UNG is reaching this stage. Again, just my opinion. No real clear indicators, just a fun little pattern I've learned/like to look for.
     
  13. Technical Alchemist

    Technical Alchemist forum leader won penny contest 13x won weekly contest 12x

    We saw the confluence of technicals and macro information/news result in a gain in nat gas of over 10% today.

    The technical situation is outlined well enough in the posts prior to this one. You also had CHK come out and say they are planning to put the brakes on a few natural gas projects until prices rise a little bit. CHK was up double figures in early trading and finished up 6.3% on the day.

    Another beneficiary was ECT which was mentioned a couple posts back. It bounced for a 6.72% gain as the last of the weak handed oppenheimer clients finished selling and nat gas bounced off its interim bottom. I added to my position at $19.50 but even at current levels it is yielding over 10%. I think their distribution remains around 60 cents so come February's declaration of distribution this one should run back up to 24-26 bucks a share to put its yield in line with other royalty trusts in the sector.

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    Last edited by a moderator: Mar 22, 2014
  14. useless

    useless Member won weekly contest 18x

    yes, has continued through the week here as well.
     
  15. Technical Alchemist

    Technical Alchemist forum leader won penny contest 13x won weekly contest 12x

    ECT holding up well while natural gas and other nat gas linked equities had a rough day. If I had to guess I'd say it's the pending dividend next month lending support to ECT's share price.


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    Last edited by a moderator: Mar 22, 2014
  16. txjeff

    txjeff Member

    I like the looks of ECT.
     
  17. Technical Alchemist

    Technical Alchemist forum leader won penny contest 13x won weekly contest 12x

    Don't see any real reason for the sell-off. The first thing that comes to mind is that with this being such a low-volume security and the long red candles at the open that a small group of sellers rebalancing their portfolio out of safety names like royalty trusts and into higher risk equities could be the driving force behind the 4%-down day. There's no news that I could see on the Bloomberg today and natural gas was off a fraction - nothing big.

    In the short term it looks like the, we'll call it $21.75 level, has some significance but with there not being a very deep market for ECT I would not put too much faith in it.

    I will mention again that the distribution announcement should be out before the middle of February. I would think if they announce a distribution above 60 cents I think you'll see this rally big as dividend chasers rush in to be holders by the record date. A dividend distribution of 60 cents means a projected yield of 10.94% ($2.40/$21.94) which is, in my opinion, way too high relative to what else is out there in this ultra-low interest rate environment. If you assume the market is rational and correcnt and that ECT is being priced to a nice, round 10% yield I'd expect 55 cents ($2.20 projected 12 months) to be announced. Anything more than that and it probably rallies a bit.

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    Last edited by a moderator: Mar 22, 2014
  18. txjeff

    txjeff Member

    LNG was a hot play apparently in October as liquid natural gas got allot of attention. I see in 2004 thru 2007 it hit an all time high of around $40. And then collapsed, and since October, has been on an upswing. (Apparently something trashed the market in 2007. (don't know what yet.) In either case, it looks like there's renewed interest. Here's a chart (and you can drag the slider on the bottom to see the older dates) and an article on it.


    http://www.google.com/finance?client=ob&q=NYSEAMEX:LNG

    http://www.marketoracle.co.uk/Article32952.html

    [​IMG]
     
  19. Technical Alchemist

    Technical Alchemist forum leader won penny contest 13x won weekly contest 12x

    Jeff - as mentioned on the first page of this thread I like the macro story behind Cheniere Energy [LNG] but their financials aren't as clean as I like. It's really something when a company can't consistently crush it when natural gas in the States is $3/mBtu and it fetches north of $10/mBtu overseas. Maybe they're building out their infrastructure and that is hitting their bottom line. I haven't dug deep enough to find out. I'd say LNG is worth keeping an eye on but there are too many other opportunities out there at the moment for me to commit capital to a firm still trying to find their footing.

    Take a look at Chicago Briedge & Iron [CBI]. They basically build the terminals and storage tanks for the liquified natural gas market. They've been around much longer than Cheniere are most importantly they are consistently profitable.
     
  20. txjeff

    txjeff Member

    For a second there I thought I was looking at the same chart:

    [​IMG]

    [​IMG]
     

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