Monday, May 30, 2011

No Investment Sheep in Sight

If I had to pick one commodity that is still out of favour with investors it would be natural gas. When I study a long term chart of natural gas (monthly) I see a bear market low in September 2009 followed by a large 20 month symmetrical triangle. This in turn has printed a series of higher lows and is about to generate a positive 10-month ROC number.

We need to get into the natural gas space before the investment sheep arrive. In this case the investment sheep will likely be those trend following portfolio managers who are currently chasing the utilities, consumer staples and telecom stocks. Now when the sheep take note that natural gas prices have stopped declining (three higher lows since last October 2010) they may begin to accumulate the shares of the natural gas producers.

Some smaller names would be Celtic Explorations Ltd., Trilogy Energy Corp, Birchcliff Energy Ltd, Paramount Resources, Fairborne Energy Ltd., Perpetual Energy Inc, Corridor Resources Inc., Tethys Petroleum Ltd., Delphi Energy Corp. and Vero Energy, Inc. The big go to name is EnCana Corporation (ECA). The long term (monthly) chart of ECA displays the monthly cycle troughs of 2003, 2008 and 2009. Note the pending trough of May 2011 that is about to signal the end of the short 10-month ECA bear. This pending cycle trough is supported by an improving relative reform signal. On a P & F chart ECA needs to break above $35 to trigger a bullish stampede into the name.


edmagee said...

Dear Mr. Carrigan,

In context of your Star column this morning and discussing ZJN as possibly play for natural gas.

Wouldn’t you be concerned with the thin trading volumes? (Friday was only 1400 shares)

Ed (overstayed my welcome at the gold party?) Magee

Piazzi said...

read your column in the Star

you mentioned XOP as a way into nat gas equity

why not consider FCG? said...

Hello Ed Magee

Not to worry on liquidity - the ZJN is an open-ended trust and so the price has to match the underlying basket of stocks

Note the tight bid and ask

Bill Carrigan said...

Hi Piazzi

Sure - they both track a basket of producers and the correlation between the two is high

The lower price of the FCG makes it easier to buy a board lot

Bill Carrigan