El Nino Modoki, Ocean Temps, Natural Gas And Trading Opportunties On A Cold Winter

by: James Roemer

Major Snowstorm Moves East This Weekend. This a Prelude to more Storms and big-time Cold, later in December.

In my last report 3 weeks ago, I continued to suggest that natural gas prices would rally at least 10% on my cold winter forecast and we have seen many other firms follow suit in the last few weeks, altering their earlier warm outlook. This winter promises to be brutal, at least for a few more weeks due to variety of factors. We have what we call a developing El Nino Modoki and we see contrasting sea surface temperatures in the North Pacific, compared to how they were the last 2 winters.

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The warm ocean anomaly you see south of Alaska, is in contrast to the cooler waters last winter (below). This warm ocean feature is helping to create a ridge that will tap more arctic air.

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The record warm October in Alaska, weak hurricane season we forecasted last July, combined with a host of other factors, will result in another major Midwest and Plains cold outbreak in about 10 days or so. Eventually, this may move east. The change in polarity of the sun and the highest snow pack in Canada in more than 50 years are all reasons why this winter, should be one of the coldest in recent memory. Livestock (cattle) futures are also taking note.

Maps Above

Natural gas is really the only commodity, which at some point in the last 3-4 years, has not enjoyed a "bull market." Almost every other commodity had its day in the sun. A combination of droughts (grain markets 2010-2012); precious metals (strong global industrial demand and hedge opportunities in a chaotic world and stock market from 2007-2009); coffee ($2.50/Lb. in 2010 on global weather issues) and many other markets, witnessed price spikes. The last year or so, however, we have been mostly in the bearish camp in commodities as world grain production has grown and a climbing stock market has meant that commodities such as gold would no longer been in vogue. I am still in the bearish camp in gold, thinking that (NYSEARCA:GLD) has another 10% down over the next year. The reason for my bearish sentiment is because of a change in Fed Policy in quantitative easing, market price action and a host of other reasons I have discussed in previous reports, over the last 2 years.

Natural Gas Trading Opportunities

I think there is a 65% chance that natural gas prices will reach $4.80-$5.20 by sometime in January, unless the weather forecast was to change. We are going to see frequent draws of natural gas stocks versus the 5 year average, which will put us in a pretty modest deficit in the next few weeks. This will be the driving factor in this market. I continue a bullish bias in (NYSEARCA:UNG) and think natural gas companies such as Chesapeake Energy (NYSE:CHK) and the big name drilling company Cobot Oil & Gas (NYSE:COG), could rally another 5-10% over the next month or so.

Traders should also look into various natural gas transportation stocks, which have lagged the S&P 500.

Too bad someone did not create snowflakes as bitcoins. I expect feet of snow over the Plains, Midwest and eventually the Northeast over the next 2-3 weeks.

What Other Sectors Will be Affected By A Cold Snowy Winter?

In the retail sector, fluctuations in quarterly revenue, income and EPS are greatly affected by weather conditions.

While companies such as United Parcel Services (NYSE:UPS) are expected to buy upwards of 1000 natural gas trucks in 2014, a snow cold winter from the Rockies to the East Coast could affect travel, and hence their profits. Fed Ex (NYSE:FDX) is also very dependent on weather and employee their own meteorologists 24/7.

Just one of the dozens of equity opportunities from a cold winter is Columbia Sportswear (NASDAQ:COLM), which stands to benefit from a cold, snowy winter.

In 2011, we called for a "snow drought" which adversely affected the ski season and had some negative effect on corporate earnings of Vail Resorts (NYSE:MTN). Vail Resorts' main profit center is selling high end real estate units at its various reports. So a lag effect of the 2007-2008 economic crisis likely had more of a negative effect on their earnings. However, this winter, expect cold, snowy weather to have a positive effect on earnings.

Disclosure: I 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.