A bad case of gas

May 26th, 2010 – 1 Comment

What you should take from these two bits of information from the data stream is that lower demand and increased supply will always result in lower prices.


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Claymor

 

I am just wondering if I should take a loss on my Claymore  Natural Gas shares or hold them until the fall or next winter when they might recoup. Any advice in this regard.

Jackie

 

 

 

Hi Jackie,

The charts for natural gas have been nothing less than brutal as the recession has curbed demand and new supplies such as the prolific Marcellus Shale formation in the states of Pennsylvania and New York add downward pressure on prices. The natural gas from the Marcellus Shale is forecast to be so abundant and low cost that it could replace oil from OPEC as the energy source for North America.  What you should take from these two bits of information from the data stream is that lower demand and increased supply will always result in lower prices.  The charts to follow confirm this simple economic relationship.

gas

The three year chart for the Claymore Natural Gas Commodity ETF (GAS TSX) clearly illustrates the case of a falling price for the commodity. There was a bounce off the lows in September of 2009 but that wasn’t sustained and subsequently investors found new lows with their money.

The chart also shows the resistance along the 50 day moving average that continues to plague this ETF.

 

GAS2

The six month chart tells the tale of the struggle to reverse the downtrend but again meeting resistance along the 50 day moving average.  GAS is certainly not yet a buy and it was without a doubt a sell as of July of 2008, but it is a hold if you are looking for a period of seasonal strength in the sector.

According to “Thackray’s 2010 Investors Guide”  natural gas has an opportunity for a lift from August 1 through December 21. Given that you have sustained a loss in your investment to this point you should be patient and see if a rising tide can lift this boat and recover some of your assets.

The key lesson from this case study is to always keep capital preservation top of mind. Its better to cut your losses early and have 80%-70% of your capital available for another trade that could help to reverse your loss. Finally look at the charts before you make an investment decision. From just the two charts presented it was hard to see an upside in GAS since 2008.

 

Happy Capitalism!

 

 

 

 

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