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Nat gas starting to move - how to play

edited May 2012 in Fund Discussions
Howdy folks,

Natural gas is starting to move and it's time to start scaling in . . . time to make a few bucks. Nat gas has been a $4-5 item for ever but in recent months got down just under $2. It's not bounced back and is around $2.38 as I write.

How best to play this commodity and get the most leverage is the nut question.

If you want to make a momentum play, it's relatively easy. Decide that a small percentage of your portfolio will be 'play money'. For ease of instruction, I'll use $10,000 as your mad money. When you see a divergence in a particular sector, segment, region, whatever, watch to see if it continue to diverge for the norm. If it does and looks interesting, make an initial play of 25% of your intended investment or, in this case, $2500. Now watch it and see what it does. If it loses, use a 10-20% stop loss. If it stays flat, keep watching it. If it gains, add another $2500. And watch it. If it continues to go up, add the rest. Now, use that same mental stop loss of 10-20% as a signal to start scaling out when the price breaks and the trend ends.

Enough of school.

How do you kids think we should play natural gas?





  • edited May 2012
    Hi there Ron- Great question... I've been wondering about this myself. Here's a recent article, courtesy of Mr. Murdoch: ⇒ A Flaming Buy? Natural Gas Won't Stay Low Forever

  • beebee
    edited May 2012
    Hey rono & OJ,

    I have held GASFX which seem to be somewhat a NG play. It has enjoyed recent gains as the price of NG has slid. GASFX is a combination of energy and utility companies that provides a dividend of 2.41%. This dividend has help lower the funds volitality while at the same time has a concentration of stocks in the fund...the top ten holdings make up almost 50% of the fund. Cheniere Energy is out performing 110% YTD while most of its other holdings have not broken out to any significant levels.

    I wonder if the Export side of this industry (LNG) might be a good way to take advantage of the pricing advantage we have verses the rest of the world.

    The Coming Utility Surge:

    Here's a short video on the GASFX fund:
    "We are the Saudi Arabia of NG"
  • edited May 2012
    Hi bee- and thanks for the video. Pipelines are probably a much less volatile play than the gas producers because of the current and foreseeable excess of supply. I do wonder about us being "The Saudi Arabia of natural gas" though- I'm under the impression that the "fracking" processes have not yet been deployed in a a significant manner outside of the North American continent. It's hard to believe that only we have reserves reachable by fracking.

    There will certainly be a growing market here as oil creeps up, but LNG exports on a long-term basis may be another issue entirely. Still, as far as pipelines go, the expanding US market should be enough to make this a decent opportunity. I'm adding GASFX to my "watch" list.
  • edited May 2012
    Rono, OJ, bee.........

    I noted in the last Funds Boat about nat. gas being one of the top 3 sector movers last week.
    I have been watching too since about 10 days back when pricing stayed around $1.95.
    A nominal list:
    YTD..........Apr 18-May 1..........Apr 25-May 1

    FSNGX +2 +5 +3.6
    HGT -26 +10 +7.4
    SJT -20 +9 +14
    UNG -35 +16 +8.5
    FCG (etf) -4 +10 +6
    UNL -21 +10 +6
    GASZ +12 -4 -2

    FSNGX is an equity fund, but its nav has recently crossed above the 50,100 & 200 day which have been laying upon one another. This fund is about 75% utility type and 25% energy companies.
    GASZ is a futures price/contango device, of which I am not qualified to discuss. You will note that the value with this was more during the price downward move and has reversed as the future pricing has increased.
    A special note about HGT and SJT. We, and by now, a few million other folks are aware that Mr. Jeff Gundlach and Doublelines associated all asset type of funds apparently have been adding these two.
    HGT,SJT,UNG,FCG & UNL all remain below or near their 50 averages, with both the 100 & 200 day averages still much out of reach, in spite of the % moves above for the last two weeks. The 50, 100 & 200 chart lines for these all continue to point downward.
    For the day or 10 day traders who know what they are doing........if they are not into some good money in the last two weeks, they should rethink their processes.

    If the list above formats into something readable, the numbers show the strength of the moves over the past few weeks.

    From the numbers I recall, all of the above are still down from Aug 1, 2011 pricing with FSNGX at -8 through the worst, UNG at -60%. I won't be playing with etn's and related.

    I am sure others will offer up other vehicles for this area.

    Lastly, my easiest access is FSNGX and I will watch this move above the 50,100 & 200.

    Sidenote: knowing there are excellent chartists here, I will note from my amatuer adventures in charting that I watched many on the above list move along the nominal bottom of 30 for RSI (relative strength) which many technicians place as a buy point.

  • "The Ultimate Guide To Natural Gas Investing":

    "5 ETF Ideas for the Long-Term Investor":

    "Why You Should Sell UNG, Buy FCG Instead":

    In this space, I would likely go with FCG, which is diversified, has a low net expense ratio of 0.60%, and has a respectable average daily trading volume as detailed here:

    Of course, please DYODD.

  • Hi kevindow,
    Thank you for your notes. FCG appears to be a more friendly situation for those of us who are not traders by nature.
    Take care,
  • Great resources Kevin- nice job!
  • T Boone Pickens interview here discusses special interests, a lack of an Energy Plan and Natural Gas.
  • Interesting discussion. I've put FCG and FSNGX on my watch list.
  • I've had FCG on the radar for only a few days, but it looks like traders are already well onto it as a value opportunity. It's gained 9% in the past week, and price and intraday indicative value are down about 3% in early trading today.
  • Howdy all,

    I grabbed a little GASFX and FCG and we'll see what develops. I doubt anyone would get stopped out at these levels, but . . . it's down a tad today but that's OK.


  • edited May 2012
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  • Hi Maurice- I agree with your analysis on commodities, but wonder what your thoughts are on GASFX as a longer term (not trading) sector position? Thanks-
  • edited May 2012
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  • "cause I have no history of being good at it"... well, that's sure something we have in common, anyway. Thanks a lot for your thoughts on this- I'm seeing it the same way.
  • Reply to @Old_Joe:

    Hi Old_Joe,

    I agree that pipelines are a good indirect way to make a play on natural gas as well as other energy forms that are transported through pipelines. Pipelines have contracted revenue to move the product and to me this is a more predictable revenue stream than the commodity contracts themselves. I have several diversified income funds that have a special sleeve of master limited partnerships within them because they are good income producers. One of these funds is PGBAX, Principal Global Diversified Income Fund and another one is a commodity fund, JCRAX, that holds stocks of the producers themselves along with commodity contracts which affords it many angles of investment play within the energy and commodity sectors plus it too is a good income generator.

    I wish all well with the more direct plays on natural gas … however, I plan to go with funds that make natural gas and commodities only a part of their investment spectrum because as you point out the more direct and sector specific plays can be very volatile although they can also be very rewarding at times.

    Have a great day …

  • Hi Skeeter,
    Knowing you may be away from the pc; but you have noted funds that are "A" shares. Are you invested into these two mentioned and others you have mentioned previous; with the loads waived?
    Thank you and take care,
  • Reply to @rono: Hi, rono. I bought some FCG yesterday after looking at the chart. I agree that it's downside risk is rather limited. I'm prepared to double up if I like the price and volume action as we go forward. I am very heavy in my cash and need to put it to work. FCG seems like a good short to intermediate term trade.
  • Reply to @catch22:

    Hi Catch 22,

    The funds that I invest in are all A share funds including the two mentioned above along with the others that I recently referenced in another post that I think you might be referring to. Being able to buy a good number of A share mutual funds at nav is part of my benefit package.

    So, please don't hold that against me.


  • Wow. FCG (and all energy stocks/ETFs) are in the tank today. Sold out of some positions in individual stocks and ETFs earlier in the week, taking profits and using some of the proceeds to take an initial position in FCG. I'm still over 30% cash. I'm going to watch FCG with the intention of building a decent size position in it, taking advantage of this drop. I may start adding a little more later today.
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  • Yes, I was thinking the same thing about all of the indices being down, so why pick out any particular one for speculation? The crude situation is interesting though, because it is almost similar to what we call in electronics a "feedback loop". Crude going down helps almost everything else (ignoring PM & other special cases) go up; crude goes up, biases everything else to the downside.
  • Reply to @Old_Joe: I was just continuing the thread on nat gas, not commenting on the whole market. I also am trading/speculating in this particular nat gas ETF (FCG) -- I actually doubled my trading position about an hour ago. As far as other sectors go, I have a watch list of stocks and ETFs that I'm monitoring. I'm also watching the main part of my portfolio which is all mutual funds, with an eye to increasing my positions in those funds on pullbacks.
  • edited May 2012
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  • It depends on what is moving the price of oil, a supply shock will have the opposite affect between the price of oil and the stock market, while a demand shock (like a weakening economy) will cause both to move together.
  • what about copper? probably something to look at also
  • johnN writes:what about copper? probably something to look at also

    Interesting. I received an email alert from Elliott Gue, editor of PersonalFinance with a strong recommendation on Freeport McMoRan (FCX). Down to $36.40 and at buy levels per his newsletter. I don't own this stock and have kicked myself in the past four years when it has dropped to these levels and not bought. JMO and DYODD.
  • edited May 2012
    Related - Oakland County neighbors fear oil, gas drilling near Orchard & Cass lakes -
    Freep article for Catch, Rono and other flat-landers.

  • Reply to @Old_Joe: GASFX benefits decreasing prices of NAT GAS to a certain degree because it holds GAS utilities and GAS utilities profit margin goes up when input prices go down and their output prices are maintained at the same level.

    It did benefit from lower prices up to now, and I am afraid it will be hurt with prices going up. IMHO, it is the wrong type of investment to hold if the prices to up.
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