Natural gas is having a volatile 2014, trading below $4 near the start of the year, then surging to over $6.40 before hitting a two-and-a-half month low at $4.22 on April 2. The ride doesn't appear to be over yet though. A more than 4% surge on April 17 broke short-term resistance, and unless that breakout fails, there is more upside to come. With another sizable move in natural gas close at hand, the natural gas ETF offers one way to get involved, while natural gas related stocks provide another.
In 2014 the United States Natural Gas (ARCA:UNG) has seen a low of $19.47 and a high of $27.89, and over the last two months has been moving between $23.71 and $26.19. March through early April the price was meeting resistance between $25.75 and $26.19, but a 4.24% price jump on April 17 broke through it. If the breakout is legitimate, and follow through to the upside is seen in the coming days, the yearly high is likely to be tested again. A drop below prior resistance warns of a false upside breakout, and the recent range continuing until a more dominant break, either up or down, occurs. One trade is to go long with the breakout; place a target near the former high and a stop loss inside the prior range. Another trade is to wait and see if the price continues moving higher, then buy on a pullback (if it occurs) in the $26.50 to $26.20 region, with the same stops and targets.
Chesapeake Energy (NYSE:CHK) has also broken above short-term resistance. After a strong rally in the last half of 2013, the price had been drifting lower, making lower swing highs and lows. When the price moved above $27 on April 15 it broke the downward trendline, and signaled another advance in alignment with the longer-term trend. The 2.47% rise on April 17 also broke above the December high, adding evidence for a further rally. The November high at $29.06 is still overhead, and while it may pose short-term resistance, based on the longer-term trend it is likely to be exceeded. Pullbacks toward the trendline between $27.40 and $27 present buying opportunities with stop below $26 and targets above $29.50.
SandRidge Energy (NYSE:SD) surged 4.17% on April 17, and closed above a short-term range signaling another advance. The price now looks poised to test the October high at $6.96. Over the longer term the stock has a tendency to move in big ranges, therefore $7 could be a road block for the buyers. Additional resistance is near $7.40. Short-term traders can trade the breakout, with a target just below $7 and stop below $6.60. Alternatively, wait for a pullback toward $6.60 to go long, with a stop just below. While an uptrend is currently in place, with major overhead resistance and conflicting long-term evidence, it is too early to say whether this stock will continue to trend higher over the long-term. Therefore, the sharp moves favor day and swing traders.
Cheniere Energy (NYSE:LNG) is in a strong uptrend since September, with the price consolidating in a range between $59.39 and $50.91 in April. A rally back above $56 is likely to trigger enough buying to retest the $50.91 high. Short-term traders can place a stop below $54.50, and hold for a larger gain if the price breaks above $50.91. A decline below $53 is likely to send the stock to $51 or lower. Therefore the next buying opportunity is near the trendline.
The Bottom Line
Natural gas has experienced big moves this year, and could very well experience more, along with the stocks and ETFs related to it. While that presents opportunity, it also presents risk to traders or investors unprepared for the volatility. With the breakout on April 17 it looks like natural gas is in for another rally, but breakouts can and do fail. When trading these stocks and ETFs make sure they align with your investment or trading strategy, and use stop loss orders to keep risk in check.