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Saturday, May 15, 2010

Natty: It's a Gas!, a Review of ATPG, and a look at SWN

It is irrelevant to look at Natural Gas stocks without understanding the movement of Natural Gas. I am very bullish on Natural Gas for the long term. But I am very un-bullish / borderline bearish on it for the short term.

My first chart is a long term monthly chart of Natty. Natty is volatile and this one removes the noise. The long term technical indicators here are weak. The bottom made a few months ago was *not* made on positive divergence. The bounce up since then has been pretty anemic. It just barely touched the large support zone at 2.00-2.50. The chart stinks quite frankly and I don't like it. This is not a bullish chart. Not yet, it has a lot of potential. But I want to see a bottoming stance and this chart is not displaying it.

However: If we get back down to 2.00-2.50 again, I think the monthly MACD will be sporting positive divergence. That would make me *very* bullish: a commodity that I am bullish on for the long term and a chart that displays a real bottoming stance. That would be a winning combination.

So I think Natty has more to go in terms of a correction. This is why I am bearish on most Natty producers for the short term. In general I am bullish more on raw commodities than I am the producers at current market valuations. I owned *a lot* of oil producers in Dec of 2008 because the valuations were ridiculously low. COP is one of the few oil producers I am still bullish on at the moment (Disclosure: I am long COP). But I think the whole oil and gas industry needs a correction. And when it has one, I will be scooping them up again.

So first up ATPG

Disclosure: I have a small, but profitable, short position in ATPG

I have written about ATPG a few times.

- Analysis Update: ATPG and AMX
- Analysis Update: ATPG and AMX (Feb 5)

Let me be clear, I am not long term bearish on ATPG. In fact I am long term very bullish. I think the management has made some smart long term strategic purchases. But their debt load is high and their stock ran up too far *way too fast* since this last correction.

But there is another aspect: My previous counts had ATPG in a very long term correction. We had a 5 up and a 5 down. But something about the count never sat right with me. So the most recent price action made a definitive higher high and the move up since the bottom looks like a very clear impulse up. This caused me to review the larger count and it makes me think that the lows reached in March 2009 were the result of a *completed* expanded flat (not the A wave of a larger correction). This makes me happy because I do not think ATPG will make lower lows again. But I do think it will correct. The last major correction in 2008 was very deep (~90%). Based on the bounce down off the downtrend line, the fact that Natty needs to correct, and severely overbought and downtrending weekly technicals, I think this correction could be a 78% correction (Fib ratio).

In my last post on ATPG, I identified two support levels, both of which are near a 78% retrace. I think ATPG would be a very compelling buy at either of these levels if it reached them with positive divergence on a weekly chart

Next is SWN

SWN is another Gas producer that I am long term bullish on, but short term bearish on. The move off the bottom for SWN has not been impulsive. In fact it has been very corrective. The possible pattern and count could be a long term flat. If it does pan out and reaches the $16/$18 level again, I will become *very* bullish. (Disclosure: I have no current position in SWN but have been long SWN previously)

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