Natural Gas

I lost a lot trying to play natural gas last year. I bought the UNG at $38 and sold out much, much lower. I say that to temper excitement as I think Natural Gas is the play of the year. Now I know that the G8 met this weekend and according to the MAINSTREAM MEDIA, they have inflation under control as they have figured out how they can "flip the switch" and call in all of the excess liquidity. The dollar is even moving higher on the word out of the G8. I don't buy that for one second. I think we will see inflation and that will push nat gas much higher. Lets take a deeper look.

Natural Gas is undervalued in comparison to crude oil according to historical standards. Why? Because as panic subsided over crude oil, natural gas became a less viable alternative as it would take massive infrastructure spending to make a transition to power our automobiles. A conversion to natural gas is mandatory in my mind and the price of the commodity will go up as it becomes a reality in the minds of more investors. Crude oil has doubled in the past couple of months and natural gas is still working to put in a bottom. History tells us that this will change and often times these disparities right themselves in a very short time period.

Why has gas stayed down? Inventory levels have stayed surprisingly strong as prices plunged. There were several major finds and the drilling had been completed in these areas which sustained supply over the long haul as demand fell dramatically. The companies owning these wells had spent a tremendous amount of money completing these wells. They were not going to leave it in the ground as prices fell, they are pressured to recover their investment as quickly as possible. As a result, they have been producing the commodity even in the face of major declines in demand.

This trend will NOT continue as demand increase. Sure they will keep producing what they have, but will not be spending extra money to increase production until prices show a sustainable recovery. It is easier to take supply (drilling rigs) offline than it is to put it online. The cost to produce new finds is approximately $3.70 mcf. I would expect that prices would need to be sustained well over $4.50mcf before we see an all out effort to get production back online---and all the while inventories will be declining.

All of this is just the natural demand supply relationship and does not factor in the "panic spiral" that I expect we will see with the dollar/oil relationship. I think as we see the dollar fall (and it will over time in my opinion) oil will rise and Nat Gas will rise even further as it makes up ground in relation to oil. In summary, I think we could see a double in Nat Gas by the end of 2009. I just hope my prediction is better this year than it was last year.

Consumer Confidence===I have no confidence in IT.

I have no confidence in the consumer confidence number. The market may move when it is reported but we have seen it improving lately and I truly think that the number is impacted by what the Mainstream Media is saying. The gauge that I use for consumer confidence is the Money Multiplier and it is at historic lows. Confidence is worth nothing unless consumers are putting their money where their confidence is---and the money multiplier tells us that they are SAVING NOT SPENDING. We need to see the savings rate increase and saving is a good thing--but the MM is telling everyone how important the Consumer Confidence number is and it is simply not important in my book.

I think natural gas is very close to the bottom. It is down in premarket trade, but I will be looking at it today. I will do my analysis this weekend and have it posted here. The market tried to break above 950 on the S&P yesterday, but could not close above that level. I would expect a down day today to test 930-925, but the futures are hovering around the key 939 pivot at the time of this writing. If we get a down day I might be looking to add to my key "inflation" plays such as FCX,X, and oil and nat gas drillers/producers/servicers.

I will wait for more clarity and would like to see us test 925 today. Be careful until we get clear direction from here.

CONSOLIDATION---GET READY FOR THE BREAKOUT

The tight action lately (on a closing basis) shows me that we are heading for a major move in one direction. I have been wrong but I think we are going to test and break 925 on the S&P. Futures are up slightly at this time, but they are also talking about Russia and others threatening to diversify away from Dollar Denominated assets. I see the dollar continuing to fall over time and think oil is still a decent buy here if you can stand some volatility. I still like FCX and X as plays on inflation and am looking in depth at natural gas. I will have my detailed analysis on natural gas this weekend.

Jim Rogers laughs at the accuracy of government jobs numbers. I will have more when we get more clarity. See the Rogers video below.

STOCKS HEADED HIGHER?

The futures are pointing to a much higher open and are above the key 945 level on the S&P. I have been looking for a pullback and have been wrong. Jim Rogers explains in the video below that he has no shorts right now and that is unusual for him. He makes some great points and I guess I will have to listen more closely as today doesn't appear to be anything but upward for the averages and commodities.

Headed Down?

Yesterday was a very interesting day and many traders walked away with the attitude that it was a good day because we rallied at the end of the day. I am concerned as I saw many of the stocks that I consider to be leaders drop on higher volume. The futures are almost flat here, but I am looking for a down day. At the current time, the DAX futures are above the 5000 level and I need to seem them go below that level for us to get a really nice "correction" day in our markets.

There is a lot of talk on FOX this morning about how small business has been limited in terms of their normal credit during these trying times and that will hamper true economic recovery. I like BOOM here and think it will go much higher unless the market gets hammered. I would love to have a pullback day here for the market and get the opportunity to buy this one at lower levels.

The energy sector is going to continue to rise in my opinion. The dollar is going to fall slowly and that is going to cause the price of oil and gas to rise. DID I MENTION THAT FOX NEWS REPORTED THIS MORNING THAT GASOLINE HAS GONE UP 41 STRAIGHT DAYS AT THE PUMP? AND PEOPLE TRY TO TELL ME WE ARE HEADED FOR DEFLATION!!!

FCX AND X presented good buying opportunities yesterday in my opinion--and they will again, so be patient. I am looking to put some solar in my portfolio as the sector is on fire. I will have more analysis later on this sector.

Trend Reversal?

Some are saying that we had a trend reversal on Friday because the "better than expected" jobs number should have sent the market much higher. I think at best this rally is overdone. I sold a call spread on COF and have been burned but have 2 weeks to see it turn around if the stock gets below $22.50. I am curious to see how today pans out. If we roll lower, I will be ready to get short---I have my list ready. The German DAX futures are hovering right at the 5000 level (4998.5 at the time of this writing). I would like to see it fall below 4970 to confirm my short bias.

McDonalds sales are up 5.1% for the month of May--but the stock is trading lower as it sees potentially a 20% drop in earnings according to a report this morning.

Keep an eye on the Dollar, Oil, and Natural Gas as well. If the market pulls back very far--it will be key to asses whether the commodities get cheaper and the dollar stabilizes. It will be a very scary scenario if the commodities continue higher as the market falls.

I don't like to trade as much on Mondays, so I will be content to sit on the sidelines and get ready for tomorrow. If we break key levels, I will make some trades on SDS.

Jobs Report Sends FUTURES HIGHER

The jobs report has send the futures much higher. Oil is soaring as well and I am happy with my X and FCX. I sold a call spread on COF a couple of days ago and it appears that I will take a big loss on that one. I was not in the camp that thought the banks were poised to headed higher through the summer. I am surprised by this market strength.

I still think the place to be is owning "stuff". Oil, Nat Gas, Coal, Gold and Silver are going to outperform the market. I like RIG, MEE,BTU and those type stocks for the long haul. I will do more of an in depth analysis on those specific stocks over the weekend--they will be volatile in the short run. I have gotten hurt from time to time trading each of those names.

It is scary to me that this market reacted so positively to this jobs report and did not react to the announcement that the White House intends to appoint a PAY CZAR
CLICK HERE TO READ THE ANNOUNCEMENT More taxes and regulation will cause our economy to collapse.

I believe that the jobs report points more toward stagflation. This may be a trap setting up in the markets. I still think we retest the lows, BUT I HAVE BEEN WRONG.

PULL BACK COMING---BUT HOW SEVERE???

I have been pretty much on the sidelines as I have been unimpressed with the volume in the latest rally. I think we are going to see a pullback today and it is going to tell me a lot based on its severity. I have been dabbling in options--selling puts on FCX as I think it will continue to do well as inflation takes hold. I sold half of my X and hope the other half will run.

We have a great interview with John Williams of Shadow Stats coming soon and will have more market analysis when we feel like there is something to play. We don't make calls just for the sake of making them and are frankly scared of this recent rally. Good volume could change my mind---but right now I am on the sidelines.