Natural Gas Stocks: Second Big Rally In A Month

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Includes: CHK, ECA, ERF, FRAK, GASL, PUW, RICE, RRC, SGY, SM, SWN, URA, VNR, WPX, XOP
by: Daryl Montgomery

Summary

Energy stocks rallied across the board on and around early April 12th.

The biggest winners, as was the case in early March, was certain natural gas stocks.

Chesapeake Energy had one of the biggest rallies going up 34% in one day.

More big rallies should be expected in natural gas and other energy sectors.

April 12th saw a major rally for energy commodities and energy stocks. WTI May oil futures were up 4.5% to close at $42.17 a barrel, which was the highest settlement in a year. May natural gas futures did even better, closing up 5.5% on the day. There were big winners across the energy space, though. ETFs XOP (Oil and Gas Exploration and Production) was up 6.8%, FRAK (Unconventional Oil and Gas) was up 6.1%, URA (uranium companies) was up 5.0% and PUW (alternative energy) was up 7.5%. Some of the biggest winners, however, were natural gas stocks and this is the second time in a little more than a month that this has been the case.

While the ETF FCG (First Trust ISE-Revere Natural Gas Index Fund) did well, rising 5.6%, which was about the same as natural gas, some of its 28 components had spectacular rallies. This also occurred in early March when the index rallied strongly. Most stocks in the industry have had selloffs for years and are so beaten down that they are capable of explosive rallies. The tripled leveraged ETF for the index, GASL, was up 16.9% on the day. It did even better (so far) in the rally in early March. See the chart below.

Leveraged Natural Gas Stocks ETF GASL Price History Early 2016

Chesapeake Energy (NYSE:CHK) was the biggest winner in both rallies. It was up 34% on April 12th and in the low double digits the day before. It rallied almost 100% in only a few days in early March. This time around, the big move up started because Chesapeake, the second biggest natural gas producer in the United States, had come to an agreement with its creditors. The company was able to maintain its borrowing power by pledging more of its assets to its lenders. Even after its big two-day rally, the stock closed only at $6.05. It peaked in 2008 at over $60. Below is a chart showing its 10-year price history.

Chesapeake Energy 10 Year Price History

Other components of the Natural Gas Index that were selling for more than a dollar and were up around 10% or more were: Encana (NYSE:ECA) up 10.5%, Enerplus Corp (NYSE:ERF) up 10.8%, Range Resources (NYSE:RRC) up 9.2%, Rice Energy (NYSE:RICE) up 8.2%, SM Energy (NYSE:SM) up an incredible 23.5%, Southwestern Energy (NYSE:SWN) up 15.4%, Vanguard Natural Resources (NYSE:VNR) up 13.1%, and WPX Energy (NYSE:WPX) up 9.7%. The biggest rally in the index was in the penny stock, Stone Energy Corp (NYSE:SGY), which was up 52.7%. It did close over a dollar, though.

Energy commodities and energy stocks are participating in an all encompassing rally. After years of selling down, the turnaround has started to take place (its part of a larger reversal in the entire commodity sector). Stocks usually lead a commodity up. The explosive rallies that began with natural gas stocks in early March and have now taken place a second time are likely to occur in other groups in the industry and in natural gas stocks again. Watching this energy sector closely should offer investors some significant and fast profits in the next few months.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.