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Stock, Options, ETF and Commodities Investor; My educational background is in Computer Science and Accounting with significant entrepreneurial and Fortune 100 Corporate experience in Information Management and Technology services in industries including: Consulting, Oil and Gas, Manufacturing,... More
  • DGAZ - Looking For The Exit 7 comments
    Apr 10, 2014 6:01 PM | about stocks: DGAZ

    For those who have followed my articles, in my original thesis I had suggested that I would be looking to exit the trade in the April/May time frame - anticipating a very nice profit. The harsh winter continued to throw buckets of snow on the thesis, and we have been trading the volatility for decent profits along the way. But, my expectations have continued for a good fall in NG prices and a nice pop to complete the season for DGAZ.

    Today, the storage report released a net injection of 4bcf, versus expectations for a 13bcf net injection, so perhaps slightly bullish, although this is in contrast to -73 bcf withdrawal in last weeks reports. Interesting that the bulls took us to higher prices on net injections, when demand is clearly falling, than when we still had withdrawals the week before.

    Looking at some of the arguments on both sides of this:

    Bull side:

    - Cold fronts continue in the NE, providing a colder than normal spring with higher demand. In the NE, there was a -5bcf draw reported this week

    - Storage levels are well below the 5-year and 10-year averages

    - Demand for NG may grow, and Congress has approved some permits to export LNG

    Bear side:

    - Residential and Commercial Demand for NG is quickly falling

    - Storage inventory should not matter much for pricing in April/May time frame, as demand should not require use of storage

    - With prices elevated, storage providers may wait until prices fall before they purchase larger volumes of NG to refill storage reservoirs, which should help at some point, facilitate lower pricing as demand falls.

    - While Congress has approved some LNG permits, it will be 2015 before facilities will be prepared to export LNG. Any new permits to support Ukraine, are not likely to create demand for the US until at least 2016.

    - One thing that may work a bit against the bears over the next few months is, demand for NG will be Residential + Commercial + injection demand. That total demand will be boosted a bit by the low storage levels (although providers will not buy to replenish if prices are too high). I think this will place a floor in NG higher than when we saw prices under $3 last year. The only question is, will this floor be at $3.5? $3.74? $4? I'm not sure anyone can answer that question definitively.

    With the bull and bear positions in mind, lets take a look at the latest 1 year daily chart for Natural Gas.

    (click to enlarge)(click to enlarge)

    I had mentioned before that there was good resistance for NG prices in the 4.5 area, and strong resistance around 4.6. On the gap immediately after the report release today, prices jumped right through that resistance. If you view the chart now though, next resistance is very strong at 4.7, and this is also where the 50-day MA is at present. That should offer very strong resistance and prices did not make a test on that resistance today before tailing off toward the end of the day.

    RSI is at 55.49 which is neutral but biased toward the overbought side. MACD is currently bullish and Stochastics are low with price action trending them upwards. We might continue to see the bullish histogram for MACD for a few days, but either today was the peak, or we should soon see the peak before falling off and watching price action pull back.

    As we start to move back down now, there is support at 4.25 so possible if we get there, there could be a short-term bounce before breaking through that support to head down to support and the 200-day MA at 4. Support at 4 could drive another bounce, but if we break 4, we could see 3.5.

    Bear arguments for fundamentals I think are still there and expect to see good downward pressure on NG in the near future and I will be looking for the best time to exit later this month or next month. However, there is clearly still some risk. If the bulls run NG prices above 4.7 to break out over that resistance and the 50-day MA, unless we quickly pull back under that resistance, the bear thesis may be wiped out for the near future.

    We need to be on the watch for price action in NG over the next week. This should be indicative of whether the bulls or bears are going to assume control. Above 4.7 and bears may have to be prepared to scale out of positions. Below 4.5, and the bulls may have to be prepared to scale out of theirs. The battle between the bulls and bears shall continue.

    Disclosure: I am long DGAZ.

    Additional disclosure: I also am long BOIL puts. I may trade and reposition DGAZ shares based on dynamics associated with the Natural Gas Market. I may also trade in and out of UGAZ, or buy/sell calls and puts on BOIL or KOLD (2X Leveraged ETFs on Natural Gas Index).The thoughts and opinions in this article, along with all stock talk posts made by the Author, are my own and are shared on the basis of helping others learn, to provoke other points of view that help us all on our journey to become better investors. My posts are never intended to provide investment advice. Investors should always view multiple sources of information in their due diligence process.

    Stocks: DGAZ
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Comments (7)
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  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » Be sure to read NG bullish views as well. Just noticed another article posted here: http://seekingalpha.co...

     

    This article suggests that if storage is not replenished quickly, this will cause NG price spikes. This is contrary to my view that prices need to come down because Res + Comm demand is falling and storage providers won't purchased NG to replenish storage until prices come down.

     

    We will have to see with a bit of time, which thesis plays out in the way the markets trade the fundamentals.
    10 Apr 2014, 06:39 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » Another great article on the Russia/Ukraine dynamics pasted in below from the following link: http://seekingalpha.co...

     

    Cheniere CEO says U.S. gas can't liberate Europe from Russian hold
    Cheniere Energy (LNG) CEO Charif Souki says the ability of U.S. energy to save Europe from its dependence on Russian gas has been overstated, partly because only six to eight out of 24 proposed U.S. export projects ever have a chance to be completed.
    LNG's own terminal, Sabine Pass in Louisiana - the only project approved for export so far by the FERC - is due to export its first liquefied natural gas towards the end of 2015; at full capacity, it will send out 2.2B cf/day of gas, but Europe’s daily consumption is 40B-50B cubic ft., Souki says.
    Cheniere has signed contracts to sell gas to various European companies, but Souki says he has no control over where those customers would sell that gas; "I'm sure they will be opportunistic," he says.
    10 Apr 2014, 06:54 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » For the storage report tomorrow, here are estimates:
    +39bcf - First Enercast Storage Poll
    +38bcf - Powerburn

     

    Next 3 weeks estimate from First Enercast are: 55, 73, 95.

     

    NG front month contract price is trading at 4.533 at present with a decent day for DGAZ holders. We will see if this weeks estimates are more in line than last weeks, as the report gave bulls a reason to gap up and rally the price. If we do have a good injection, reflecting falling demand and the start of storage refill, I would hope we break well below 4.5 and go down to test 4.25 NG on the front month contract.

     

    One concern I have in the near-term is, if market prices traders drive are based on high injection levels, but storage providers are going to wait for lower prices to refill storage, then bulls may manage to rally short-term. But, the fact no storage draws are needed perhaps for the remainder of the season, this will show that demand is falling well below supply - and that soon as prices fall, storage providers will purchase some of the excess to begin replenishing storage for next winter.
    16 Apr 2014, 04:51 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » Based lots of reading lately, the range of estimates for the storage report range from +26bcf to in the +70s bcf. It appears estimating models are struggling to adapt to this part of the season after some accurate forecasts through the winter on withdrawals.

     

    First Enercast Storage Poll results:
    View Poll Results: Storage for EIA report date 4/24/14
    Below 40 Bcf 3 11.54%
    41 to 45 Bcf 6 23.08%
    46 to 50 Bcf 6 23.08%
    51 to 55 Bcf 2 7.69%
    Above 56 Bcf 9 34.62%

     

    First Enercast Estimate: +59bcf
    PowerBurn Estimate: +57bcf

     

    Last week reported +24bcf on the EIA weekly report which was significantly below First Enercast and PowerBurn estimates and gave the bulls reason to run. Lets see if forecasts can prove to be more accurate this time around.
    23 Apr 2014, 01:04 PM Reply Like
  • dabaker012
    , contributor
    Comments (5) | Send Message
     
    Hi Growfast,
    Thanks for the update and your previous articles on DGAZ. I am learning a lot. Are you a buyer of DGAZ in the $2.70s? or are you waiting for another potential big drop tomorrow before jumping in with both feet?

     

    Thanks,
    Dan
    23 Apr 2014, 03:21 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » Dan,

     

    I'm holding a core position in DGAZ at the moment, but have not been adding to it as the dynamics in the NG market have created more uncertainty as to price direction in the near-term. The bulls have taken control and precedent from the last 2 Storage reports was, even though demand is dropping rapidly, the bulls continue to advance pricing based on storage report actuals coming in less than estimated injections.

     

    Long-term fundamentals are becoming more and more bullish and are so far, being leveraged for near-term pricing more than many, including myself have expected.

     

    On a technical level, I don't like the short view with prices above 4.7. If we pull back below 4.7, things will look better if we can stay there for a bit.

     

    Many now expect, and I do too, for there to be falling prices within the next 5 to 8 weeks. Most consensus is now that lows may hit 4.0 in NG (no longer expecting to see 3s). So, that limits profit potential.

     

    I'm still looking for a decent rally in DGAZ to well over $3, but at that point, I will be considering exit from DGAZ and evaluating how I want to go long NG for the longer-term going into summer heating months.
    23 Apr 2014, 03:33 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » Here is information from a news release today on the expected injection for storage report tomorrow.

     

    The Energy Information Administration may say gas inventories rose by 77 billion cubic feet in the seven days ended April 25, according to the median of eight analyst estimates compiled by Bloomberg. The five-year average gain for the period is 58 billion. Commodity Weather Group LLC predicted mostly normal or higher-than-average temperatures in the contiguous U.S. from May 5 through May 14.

     

    “Tomorrow’s storage injection will be well above the five-year average,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Temperatures are going to moderate after the weekend, and that’s eroding the bullish case for gas.”
    30 Apr 2014, 05:09 PM Reply Like
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