Cinch Energy Corp. is tied to gas like a pony on a hitching post

Jun 23rd, 2010 – 1 Comment

CNH needs to have continued success in its drilling operations to kick up production and it also needs the price of natural gas to move higher.


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I read your pieces whenever I can. I would like your thoughts and future price prediction for Cinch Energy.

Thank you
Best regards,

Douglas
Red Deer

 

Hi Douglas,

As goes natural gas so goes Cinch Energy Corp. (CNH TSX) which is 90% levered to the commodity.  CNH has allocated $50M for their 2010 capital budget and will use it to develop its targets and could  include acquisitions. In May the company reported a well testing at 9 million cubic feet of natural gas per day which got the stock reversing its downtrend.

 

 

cnh

The three year chart provides a number of interesting patterns that are worth discussing. After the March 2009 lows CNH caught a nice bounce but then hit resistance against its 200 day moving average moving from $0.90 to a double bottom at $0.60 in July and August of 2009.

Volume then picked up and drove the price to a high of $1.90  where it met resistance in December 2009 and again in February of 2010. From there the stock retreated to $1.10 in April of 2010 where it found support and bounced to $1.50 and is now holding support at $1.35.

 

 

 

 

cnh2

The six month chart illustrates the topping at $1.90 and the retreat to support at  $1.1o. Currently the MACD seems to be turning lower which could be setting up another pull back. If nothing else CNH is providing lot of opportunities to ride some decent trends. But its not a buy and hold stock.

 

 

 

natgas3

 

As mentioned earlier Cinch goes with the price of natural gas. The price of natural gas caught a bounce in late May 2010 and along with the report of a nice gas well with healthy testing volumes helped move CNH from $1.10 to $1.50. A 36 % profit in four weeks is nice if you caught the ride.

 

 

natgas4

The six month chart on natural gas tells the tale of a good bounce off $4.00 with resistance coming in at $5.20 and the retreat to below $5.00. The MACD is turning down suggesting that some of the momentum is coming out of the uptrend.

 

CNH needs to have continued success in its drilling operations to kick up production and it also needs the price of natural gas to move higher. When you look at the financials for the company its very clear that higher prices for the commodity go right to the bottom line.

According to Brooke Thackray natural gas enjoys a period of seasonal strength that runs from the beginning of August to late December so it might be prudent to look for opportunities in that sweet spot. Just keep in mind this is a trader so look for entry and exits that are profitable.

 

Happy Capitalism!

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