Natural gas futures have fallen more than 40% in the last few weeks from their highs. Despite this, the stocks of many companies whose businesses are levered to natural gas remain in strong uptrends.
I've picked out three stocks that have been consolidating while natural gas has sold off. They are poised to move higher as natural gas bounces off significant support levels.
National Fuel Gas (NFG - commentary - Cramer's Take) is a utility and natural gas producer based in northern New York state. As we can see on the chart below, it broke out from a nice base in August, and it has been consolidating in a wide pennantlike pattern.
The pattern of rising lows is suggestive of aggressive buying on shallower pullbacks. A weekly close above the downsloping trend line (orange line) would be bullish. I believe the stock can get to $38.50.
If it ends the week below the pivot point at $31.84, I would sell.
The Williams Companies (WMB - commentary - Cramer's Take), another producer and transporter of natural gas, has had an incredible run since 2003.
The uptrend was so strong that it went over two years before having a significant downturn. Last week, it closed above a prior pivot point, and almost every close greater than a prior pivot has led to substantially higher prices. Based on Fibonacci projections and retracements, a reasonable price target would be $28. A weekly close below the pivot high at $24.47 would squash any momentum.
The oil and gas producer EOG Resources continues to set new highs and doesn't appear to be slowing down. It recently topped a prior pivot at $77.79. Based on Fibonacci projections, I believe $90 is a reasonable target. A weekly close below the last up pivot at $77.79 would suggest that the breakout is a fake out.
Lastly, let's take a look at a monthly chart of a continuous natural gas futures contract. From 2001 through mid-2005, natural gas formed a mega base from which prices exploded higher in the wake of Hurricane Katrina. The recent violent selloff brought futures right back to support, where there was significant buying interest. Notice how it has bounced at a confluence of support areas formed by trend lines and a prior significant upthrust pivot at $9.014. Buying interest at this level could fuel gains in natural gas and related stocks.
P.S. Will you be there when Cramer makes his next move?
Strong brands and companies with vast market exposure can help bolster your portfolio. Jim was able to lock in a 64% gain by buying Ingersoll-Rand at $13 and selling at $22.50. Action Alerts PLUS members were the first to see these moves. Were you among them? Get Free Access Today!
Energy Natural Gas Cycle's Far From Over 1/13/2006 2:16 PM EST Over time, these stocks will move higher, but take advantage of a coming consolidation.
Energy Oil Stocks Take a Walk Up 12/28/2005 2:39 PM EST The markers are busy at their year-end games, chasing these stocks higher.
Energy Wait Out Energy's Current Nightmare 12/27/2005 10:34 AM EST There will be opportunity to strike in this sector, it's just not here yet.
At the time of publication, Lerner was long Williams Companies, although holdings can change at any time.Lerner is an anesthesiologist and freelance writer who trades for his own account. He blends technical and fundamental analysis to find factors that lead to sustainable moves in the markets. Lerner's approach is research-driven and focuses on supply-demand issues, investor sentiment, intermarket relationships and monetary liquidity. He is a member of the Market Technicians Association and is the founder of TheTechnicalTake.com, a Web site that offers content, commentary and strategies for investors and traders. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. He appreciates your feedback and invites you to send your comments by clicking here. Lerner is an anesthesiologist and a freelance writer who trades for his own account. He blends technical and fundamental analysis to find factors that lead to sustainable moves in the markets. Lerner's approach is research-driven and focuses on supply-demand issues, investor sentiment, intermarket relationships and monetary liquidity. He is a member of the Market Technicians Association and is the founder of TheTechnicalTake.com, a Web site that offers content, commentary and strategies for investors and traders. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. He appreciates your feedback and invites you to send your comments by clicking here.
RSS FEEDS
PODCASTS
