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Friday, December 30, 2011

Natural Gas

Natural Gas is reaching interesting levels. NatGas stayed above $2.50 for 10 years. The last time it broke 2 was at the end of the 2001, coming off the internet bubble recession.

In 2009, there was an interesting capitulation off of $2.50.  Between 2.75 and 2.50 may provide an interesting area of support.  Based on the velocity of the move in 2009, this may be the level where producers severely cut back production.

In the past, my favorite NatGas play was CHK.  But I find some their Shale transactions questionable.  For instance, there are subsidiaries buy assets from the parent, which to me always raises an eyebrowThere are also reports of the huge asset appreciation these shale properties have seen. Circular asset purchases with high asset appreciation does not sit well with me. But if these transactions are legit, then CHK is still the better NatGas play.

(These deals are something I am paying close attention to.  In the mean time, I am taking a close look at ECA to become my NatGas play if I continue to not like what I see with CHK's financial engineering.)

Assuming the benefit of the doubt, for now, and CHK's transactions are not shady, then CHK should test 19-20 with NatGas testing 250-2.75. After the test of 19-20, it should see a relatively quick pop to 22.

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