NATURAL GAS PACES STRONG ENERGY SECTOR
NATURAL GAS SPIKES ON HOT WEATHER... While everyone has been looking at the rising price of crude oil and gasoline, natural gas prices have declined for most of the year -- until the last week. Unusually hot weather conditions have produced an impressive spike in natural gas prices which climbed over 8.0 today for the first time in three months. Natural gas is used for air conditioning. That's producing strong gains in natural gas stocks which have been energy laggards over the last year.
Chart 1
NATURAL GAS INDEX HITS NEW RECORD ... Chart 2 is a chart of the AMEX Natural Gas Index (XNG). It consists of fifteen stocks primarily involved in natural gas exploration and production, and natural gas pipeline transportation and transmission. Chart 2 shows the XNG having been in a large trading range since last October. But that may be about to end. It's making a strong bid to breakout to a new record high. The relative strength ratio at the bottom of the chart also tells an interesting story. It's the XNG divided by the Energy Sector SPDR (XLE). The line had been dropping since last December as natural gas stocks fell behind the rest of the energy sector. To the bottom right, however, the RS line has turned up (see circle). That suggests that natural gas stocks are starting to play catch-up with the rest of the energy sector. Last Wednesday, I wrote a piece about how the XLE SPDR was making a lot more money now than oil service stocks. At the moment, natural gas stocks may offer the best combination of value and strong chart action in the XLE and the energy complex.
Chart 2
NATURAL GAS STOCKS IN THE XLE... Some exposure to natural gas stocks can be got from the Energy SPDR (XLE). I counted seven of them in the XLE. That may also explain why the XLE has been doing so well of late relative to oil service stocks. In fact, two of the XLE leaders that I showed last Wednesday (Devon and XTO) are natural gas stocks. Here they are again. Chart 3 shows XTO Energy nearing a test of its all-time high at 47.91. Chart 4 shows Devon Energy having just cleared a six-month down trendline. There are several others.
Chart 3
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NATURAL GAS HIGHS ... The next two charts show natural gas leaders that are at or very close to new record highs. Questar Corp is within a point of a new record (Chart 5). Its relative strength line (vs. the S&P 500) has been rising impressively over the last month. Chart 6 shows Noble Energy trading over 50 for the first time in its history. Its relative strength line is spiking up as well. Chart 7 shows Williams Brothers trading at a new six-month high and moving toward its old high. It's also the day's strongest stock in the Dow Jones Utility Average.
Chart 5
Chart 6
Chart 7
NATURAL GAS LAGGARDS ... The next three charts show natural gas laggards that are just now turning higher. Chart 8 shows EOG Resources which has just broken a six-month down trendline. Charts 9 shows Apache trading at a three-month high. Chart 10 shows Southwestern Energy just having cleared its 200-day moving average. There's a lot to choose from. If you're looking for group leadership, and better relative strength, take a look at those natural gas stocks at or near record highs. If you're looking for something cheaper, possibly with better value, you might want to look at those that have been lagging behind. Or you might want to consider a natural gas mutual fund.
Chart 8
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Chart 10
FIDELITY NATURAL GAS FUND ... In a list dominated by energy funds, the Fidelity Natural Gas Fund was the strongest Fidelity sector fund last week. Chart 11 shows the FSNGX plotted through Friday. It's undoubtedly higher after today's price gains in the underlying stocks. The fund has been lagging behind the S&P 500 since the beginning of the year, but is beginning to gain ground both in absolute and relative terms. Natural gas appears to be the hottest part of the energy patch at this point in time.
Chart 11
ENERGY SPDR NEARS OLD HIGH ... The Energy Sector SPDR gained 1.5% today and is the day's strongest sector. [The Natural Gas Index rose 1.7%]. Its daily chart shows the XLE nearing a test of its spring high. Its relative strength line has already exceeded that previous high. Not surprisingly, three of the five top percentage gainers are natural gas stocks -- EOG (4.5%), XTO (+3.8%), and Anadarko (+3.5%). With the Fed nearing another decision on interest rates, the last thing it and the market needs is a new spike in energy prices.
Chart 12
