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mustbepatient (99.44)

Are we closer to a natural gas crash?

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July 07, 2009 – Comments (10) | RELATED TICKERS: UNG , FCG

I posted last weekend about the possibility of a large decline in the near-term natural gas price.  Since then, a few important things have happened:

1)  UNG, the natural gas ETF, broke below its April bottom on high volume.  Note that the natural gas continuous contract is still holding above its April bottom. My perception is that most speculators hold UNG rather than futures, so their emotions are governed by the UNG chart, not the $NATGAS chart.

2)  UNG announced today that it has run out of units to issue.  It cannot issue more units without CFTC approval, which it has been waiting for since June 5. 

3)  The CFTC announced that it is considering position limits, which may affect its decision to allow UNG to issue more units (UNG already controls a significant portion of near-month natural gas positions).

If UNG cannot issue new units, it won't have money to keep purchasing near-month natural gas as it has the past few months.  Such a reduction in buying pressure (which again, has been persistent for the past few months) logically leads to lower prices, all else being equal.  The big question is, what will the other NATGAS buyers do with UNG gone?  If they pull back and wait for lower prices, there is the potential for a cascade.

 

 

10 Comments – Post Your Own

#1) On July 07, 2009 at 7:45 PM, Seano67 (< 20) wrote:

Wow. Very interesting post. Definitely something to keep an eye on. NatGas has been lagging for so long now that it might/could represent a great buying opportunity if it does finally suffer a great, big crash.

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#2) On July 07, 2009 at 9:18 PM, topsecret09 (28.16) wrote:

As a technical chartist,I must say that Is one ugly chart on UNG......  That said,I am also a contrarian. When  doom and gloom abound,Its time to look for value In Individual stocks that have been hammered to death. Some of these stocks are WAY oversold on fundamentals such as price to book. One company that I follow http://finance.yahoo.com/q?s=EROC&.yficrumb=yWru0.J.9gA    Is a very well managed company that I believe will weather the storm. Building a position at these prices seems like a solid bet on a well managed company.  while your at It check out this article by Boone Pickens....   http://www.cnbc.com/id/31771798   Jim.

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#3) On July 08, 2009 at 1:59 AM, mustbepatient (99.44) wrote:

topsecret, thanks for pointing out EROC.  I poked around and liked the insider buying last November.  However, it looks like I could get the chance to buy it around $2 if oil is ready to retest $50.

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#4) On July 08, 2009 at 2:24 AM, mustbepatient (99.44) wrote:

topsecret,

I took a look at EROC's recent investor presentation.  The very last slide shows an average adjusted EBITDA of $154mm over the past 3 years.  8X that value gives $1.2B, which is pretty close to the $1.05B EV.  Sorry, but with all the bargains out there right now, I can't justify buying EROC now.

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#5) On July 10, 2009 at 5:36 PM, topsecret09 (28.16) wrote:

Total shareholder equity as of the most recent quarter was approximately $725,000,000.  They have roughly 78,000,000 shares outstanding. The would give you an approximate book value of  $9.00 a share....  Jim

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#6) On July 13, 2009 at 10:24 AM, mustbepatient (99.44) wrote:

Thanks topsecret.  If EROC gets to $2.00 I will take a closer look at their balance sheet.  With their high debt and oil/gas assets, they would do well in an inflation scenario, but they might have to weather one more deflation scare first.

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#7) On July 13, 2009 at 4:27 PM, topsecret09 (28.16) wrote:

http://www.fool.com/investing/general/2009/07/13/4-star-stocks-poised-to-pop-eagle-rock.aspx?source=iedartthv0000001#commentsBoxAnchor

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#8) On July 13, 2009 at 4:37 PM, lemoneater (72.87) wrote:

How does this relate to SE Spectra Energy?

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#9) On July 14, 2009 at 9:11 PM, topsecret09 (28.16) wrote:

Lemon....  Spectra seems like a good company,dividend yield Is 6% currently,and seems safe. Company Is slated to earn $1.32 per share next year which would cover the dividend. That said I think the stock Is fairly valued at the $16 to $17 It Is trading at.  If I owned It I would hold It for the Income. I would not buy new shares just yet... Jim

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#10) On August 04, 2009 at 4:09 PM, lemoneater (72.87) wrote:

Thanks for the analysis on Spectra. I have it already so I will hold what I have, but I will wait to add to my position.

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