Crunching the Fracking Numbers

NEW YORK (TheStreet) -- Investing in companies that produce fuels from the process known as fracking or from the manufacturing of components that allow engines to be powered by these fuels accelerated with the stock market bottom of March 2009. This process has slowed since March 2012, but appears ready for a resurgence this year.

My interest in this subject began from a recent presentation by Mike Jackson, chairman and CEO of AutoNation (AN), at the 2014 University of Tampa Fellows Forum. After hearing his presentation and reading comments from industry experts I think the industries producing natural gas from fracking and building engine components that allow heavy-duty trucks to be powered by these fuels needs a second look by investors.

Clean Energy Fuels (CLNE) ($9.48, down 26.4% YTD) is building fueling stations around the nation to provide both compressed natural gas (CNG) and liquefied natural gas (LNG) and delivers these fuels directly to trucking companies, airport shuttles, taxi services, trash collectors and public transportation facilities.

The company expects cities across the country to make the switch to service vehicles fueled by CNG to save fuel costs and clean the air. Natural gas can cost up to $1.50 less per gallon than gasoline or diesel, and, according to the company, "reduces greenhouse gas emissions up to 30% in light-duty vehicles and 23% in medium to heavy-duty vehicles." Note that nearly all natural gas consumed in North America is produced domestically.

Clean Energy reported quarterly earnings report on Feb. 27 and missed analysts' estimates of earnings per share by 4 cents for a loss of 31 cents a share. The company also announced that gallons of fuel delivered rose 13% during the fourth quarter of 2013.

The stock has had a volatile trading pattern since bottoming at $3.23 in November 2008. The hype of the expanded use of natural gas to power vehicles resulted in a strong rally to $23.70 in April 2010. Delays in the process resulted in a downward move to $9.02 in October 2011. Renewed speculation fueled a rebound to an all-time intraday high at $24.75 in March 2012. Looking at the weekly chart this spike higher looks like a parabolic bubble that popped and the stock has been below its 200-week simple moving average since October 2012 with this average now at $13.81.

Prompting investor interest is the 2014 decline to as low as $8.27 on Feb. 28 in reaction to the earnings miss. Our 'Crunching the Numbers' table shows that the stock is below all five moving averages. The weekly chart is negative but oversold with its five-week modified moving average at $10.13. My weekly value level is $8.21 with a monthly pivot at $9.84 and semiannual risky level at $11.55 which is the first upside target on a weekly close above the five-week MMA. A higher semiannual risky level is $18.91.

Westport Innovations (WPRT) ($17.41, down 11.2% YTD) provides solutions that allow engines to run on CNG or LNG. The company has a joint venture with Cummins (CMI) to manufacture low-emissions alternative fuel engines for trucks and busses.

On March 4 the company announced a joint agreement with Delphi Automotive (DLPH) to combine technologies using Westport's natural gas injectors designed to be used in heavy-duty engines. The company expects to produce more than 100,000 units over the next four years.

Westport reported quarterly earnings report on Feb. 26 and missed analysts' EPS estimates by 2 cents reporting a loss of 51 cents a share, but revenue was up 32% year-over-year.

The stock bottomed at $3.01 in March 2009 and had a huge rally to an all-time intraday high at $50.19 in March 2012. This pattern also looked like a parabolic bubble as the stock fell to $21.93 in June 2012. Moving into 2013 the stock traded as high as $35.40 in July 2013 and it's been declining since then. The stock fell below its 200-week SMA at $25.99 to a 2014 low at $15.22 on March 3.

An issue that hurt the companies in these industries is a slower than expected adaptation of using natural gas in vehicles. In doing my research for this report there appears to be resurgence in this process.

President Obama's recently announced that new fuel economy standards should be developed for medium and heavy-duty trucks. This development should help these efforts move forward.

Westport is trading above its 21-day SMA at $16.86 but is below the other four key moving averages in today's table. The weekly chart is negative but oversold with its five-week modified moving average at $17.60. Weekly and monthly value levels are $14.71 and $10.51 with quarterly and semiannual risky levels at $24.24 and $39.02. A weekly close above the five-week MMA at $17.60 would clue renewed momentum.

The profiles of the supporting companies in today's table are provided here.

Cummins ($142.90, up 1.4% YTD) traded to an all-time intraday high at $148.60 on Feb. 24 and moved below its 21-day SMA at 142.81 this morning. The weekly chart is positive but overbought with the five-week MMA at $140.37. Cummins has been a momentum stock since August 2009 and the upside should be limited to a quarterly risky level at $146.78.

Delphi Automotive ($67.77, up 12.7% YTD) traded to an all-time intraday high at $67.92 on March 11. The weekly chart is positive but overbought with the five-week MMA at $64.55. My weekly pivot is $66.48 with a monthly risky level at $68.66 where investors should consider profit taking on strength.

With Clean Energy Fuels and Westport Innovations near market lows and Cummins and Delphi near market highs, investors long the winners should take money off the table and invest in companies that appear to have more upside potential given increased demand in natural gas for fueling vehicles with engines that can do that efficiently.

Crunching the Numbers with Richard Suttmeier

There are five columns with moving average titles: Five-Week Modified Moving Average, 21-Day Simple Moving Average, 50-Day Simple Moving Average, 200-Day Simple Moving Average and the 200-Week Simple Moving Average.

The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with readings from Oversold, Rising, Overbought, Declining or Flat.

Interpretations: (stocks below a moving average listed in Red are below that moving average)

Five-Week Modified Moving Average (MMA) is one of two indicators that define whether or not a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.

A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.

A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.

A stock with a neutral technical rating has a profile that is not positive or negative.

The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance and as a "reversion to the mean" over a rolling three to five year horizon. (even Apple declined to its 200-week SMA in June 2013)

The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three to five day horizon and vice versa.

The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators in financial TV.

The 200-Day Simple Moving Average is another technical support or resistance and I consider this level as a shorter-term "reversion to the mean" over a rolling six to 12 month horizon. (even Apple tested or crossed its 200-day SMA in nine of the last 10 years)

Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.

Investors who wish to buy a stock should use a good-until-canceled GTC limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.

At the time of publication the author held no positions in any of the stocks mentioned.

Follow @Suttmeier

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

Richard Suttmeier is the chief market strategist at ValuEngine.com.

More from Opinion

It's Dumb to Think Legalizing Weed Is Still a Political Issue

It's Dumb to Think Legalizing Weed Is Still a Political Issue

AAP Exclusive: Cramer Says The President is No Longer on the Side of the Bulls

AAP Exclusive: Cramer Says The President is No Longer on the Side of the Bulls

Why It Makes Perfect Sense for Netflix and Amazon to Buy Up Movie Theaters

Why It Makes Perfect Sense for Netflix and Amazon to Buy Up Movie Theaters

2 More Reasons to Sell All Your Stocks and Run Away

2 More Reasons to Sell All Your Stocks and Run Away

Sean Hannity's Link to Trump Lawyer Raises Questions: Doug Kass Insider

Sean Hannity's Link to Trump Lawyer Raises Questions: Doug Kass Insider