Opportunities From the Crash In Natural Gas

(This is an excerpt from an article I originally published on Seeking Alpha on January 17, 2012. Click here to read the entire piece.)

Last year I wrote a two-part series leveraging the work of Jeremy Grantham to develop a strategy for profiting from a crash in commodity prices (see “Profiting from Physical Assets in a Resource-Constrained World – Rules and Picks“). Since then, commodity-related stocks have dipped several times and in many cases triggered buying opportunities by erasing their QE2-inspired gains. Yet, no crash has occurred, and I am increasingly thinking no crash is imminent. However, there is one commodity that seems to have crossed the crash threshold: natural gas.

{snip}


Henry Hub Gulf Coast Natural Gas Spot Price (Dollars/Mil. BTUs)
Henry Hub Gulf Coast Natural Gas Spot Price (Dollars/Mil. BTUs)

Source: U.S. Energy Information Administration

Given my desire to buy into commodities on the cheap, it certainly seems time to expand my exposure in natural gas. I consulted with a friend of mine…{snip}

…the wait until the next spike is killing anyone trying to hang on through UNG:


UNG has provided almost nothing but downside since its inception
UNG has provided almost nothing but downside since its inception

I previously listed San Juan Basin Royalty Trust Co (SJT) and Guggenheim Canadian Energy Inc (ENY) as preferable plays on natural gas…{snip}


San Juan Trust is well off its highs from the prior bull market but is still holding its breakout from a 15+ year consolidation
San Juan Trust is well off its highs from the prior bull market but is still holding its breakout from a 15+ year consolidation

ENY is a fund that tracks the market-timing Sustainable Canadian Energy Income Index. {snip}


Since plunging to its lows in 2011, ENY has firmly held the QE2 reference price as support
Since plunging to its lows in 2011, ENY has firmly held the QE2 reference price as support

Source for charts: FreeStockCharts.com

In the meantime, I am holding onto SJT although it has dropped 11% from where I bought it last year. I will be adding to the position on any steeper sell-off, and then will purchase ENY at what I will consider to be a very attractive entry point.

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on January 17, 2012. Click here to read the entire piece.)

Full disclosure: long SJT

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