Crude oil has been beaten down this week and a transition from oil to natural gas seems to be underway as natural gas tries to break above $4.60 again. I’m actively trading this sector now, looking for a bullish breakout over the coming weeks if the trend continues.
Two natural gas plays of mine are showing some bullish action in the charts. Cheniere Energy (LNG) has strong growth projections for 2011, turning cash flow positive, and the right infrastructure in place. With natural gas projected to turn the corner in 2011, LNG seems to be a favorite of many.
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LNG is near the end of forming a small cup and may or may not form a handle before breaking out. It is quickly running towards its 52-week high of $7.22 and breaking above that should attract some more buyers.
We are seeing some support building around the previous resistance of $6.40 which we ideally want to hold. I’d position an aggressive stop-loss just under that support if you are daytrading this and look to hold above the low created on January 5th of $6.16. LNG should continue accumulation towards completing the cup between those levels but, be prepared for a small handle forming that typically looks like a weak downtrend for a few days before a breakout. If you are not familiar with a cup and handle pattern, do a quick google search to familiarize yourself with it.
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Gastar Exploration (GST) is a very speculative natural gas play of mine that just broke above a key resistance level as I’m writing this. GST was quietly building a strong support but, a secondary offering created a panic sell last month. After the dust has settled, we are seeing GST quietly accumulate again and now it has just past resistance of $4.50, which should attract some more buyers now. Now that is has pushed above resistance, I will continue to add to my position. I expect GST to be in the $5 range sometime in February with potential for much higher if natural gas continues to see more investors flocking to the sector.
As always, do your own homework to see if you agree. Good luck out there,
Mike
At the time of publication, Kudrna was Long GST and LNG but positions may change at any time.
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Tags: Cheniere Energy (LNG), Crude Oil, Cup and Handle Pattern, Gastar Exploration (GST), Michael Kudrna, Natural Gas, Technical Analysis
