Cold is gold for natural gas

Nov 9th, 2009 – Comment

I don’t see a return to the upside at this point with the MACD still heading lower. The next level of support looks to be on the 50 day moving average so natural gas needs to bounce off the $4.50 level.


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naturalgas

Lou,

Is nat gas too difficult to call? The fundamentals suggest it should probably fall. What do you think?

Ted

Hi Ted,

There are a number of factors that you have to take into account when looking at natural gas as an investment. On the demand side the most obvious seasonal influence to the price of the fuel is weather. As fall and winter settles into the major consuming areas in the U.S.  bounded by  Chicago to Boston and  St.Louis to Washington DC  where some 127 million people live you can take comfort in the fact that they will all want gas at the burner tip when the temperature dips.

On the supply side  the major influences include political decisions, imports of liquified natural gas from offshore, toll rates on pipelines, and new sources of supply from unconventional sources such as coal bed methane, and shale gas.

All of these influences might seem hard to get a handle on inorder to make an investment decision but as I learned as a student of technical analysis, in the price there is much knowledge.

natgas

The basic assumption of technical analysis is that all the factors that influence a commodity or a stock is baked into the price and from that indicator we can make decisions.

The three year chart gives us a good view of the slide that started in September of 2008 with beginning of the financial crisis.The break to the upside in September of 2009 occurred as  the price bounced off a rock bottom at $2.75 and broke above the downtrend line . The advance since September stalled when it met resistance as the price approached $5.75

natgas2

The three month chart gives us a better look at the advance. The MACD generated a buy signal when it broke above the signal line and then a sell signal when it broke below the signal line on October 20, 2009.

I don’t see a return to the upside at this point with the MACD still heading lower. The next level of support looks to be on the 50 day moving average so natural gas needs to bounce off the $4.50 level.

The best advice I can give you is to watch the price of natural gas and the temperatures in the US from the Altantic to the Mississippi.

Happy Capitalism!


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