Here is a natural gas stock I discovered after scanning through my database... You know, it is funny sometimes how I find stocks to study and examine further.. Sometimes they come from memory, ones that I have watched before but then forgotten about.. other times they come from a fresh stock scan. It really doesn't matter where they come from though because, in truth, most of the stocks I look at are thrown in the 'trash bin' so to speak because they do not meet criteria that make them worthy of consideration.
A lot of the time what I look for are stocks that have enough cause built up over time. The cause is like potential energy and lends itself to eventual big moves. The market, and all stocks or commodities, do this all the time. It is either one or the other.. either they are building cause, or using up cause...
It goes without saying that the best time to be 'in' is when the potential energy turns into kinetic energy and hence a profit.
This first chart is of the natural gas continuous contract. Since 1990 to 1999 it seems natural gas did mostly nothing except languish in a long term basing pattern. Recently however this was obviously not the case. We saw a series of explosive moves and sharp retracements in the period from 2000 to present.
What appears to be the case now with the natural gas contract is that price is coming into an apex. An apex of a very large symmetrical triangle that is. Symmetrical triangles by their very nature are not one of the most reliable chart patterns to trade on. They are notorious for false breakouts and upthrusts. However, they do usually lead to big moves.
I do not know which way this contract will breakout, but it whichever way it does breakout will be a big move.
Perhaps it would be appropriate to look at a natural gas stock? Let us do so... :
Above is a weekly chart of NGAS plotted against its MACD histogram and also showing volume. The good thing about this price chart is the way price has held support at 4.0. From the entire move since late 2002, up to the 52 week high of 6.5, NGAS has performed a 50% retracement. Nothing too abnormal about that. It is quite normal actually. This horizontal trading range is about 2 years of sideways cause. That is 2 years of potential energy for a move.. Will it be up or down? Let us investigate further...
Clearly, the stock NGAS is correlated to the price of natural gas. The price of natural gas has not had a breakout yet though in either direction.. Sometimes the stocks lead the commodity and other times it is the opposite. Is NGAS now leading the commodity? This could be so.
I like the way the weekly MACD histogram looks, it reeks of a potential breakout. I also like the fact that on the recent downtrend in prices in late 2004, volume has dried up substantially, and price was not able to get the bottom range of long term support. This is usually an attractive indication.
The volume story is also good. The early 2004 volume explosion tested the early 2003 volume spike on dramatically higher volume. This tells me that the 6.5 level will at least need to be tested if not broken decisively.
The volume picture is more clearly seen in the chart below:
This chart clearly shows the volume relationship. A move above 5.5 would be a trigger and indication NGAS wants to move. Given the amount of cause NGAS has created, the move could be explosive. The only problem with this setup is the very unpredictable nature of symmetrical triangles. Still, the parameters are there and they are attractive, to me.
I suspect that NGAS is ready for a big move, probably before the end of this month.
P.S. By the way, you know I just love this stock and trading stuff. It is like art you know. Like looking at a painting and trying to read into it.. Damn, it is just so much fun.