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Cashing in on Natural Gas

By Jeff Clark
Tuesday, May 1, 2007

It's time to take profits on natural gas stocks.
 
Back on March 22, I showed you a chart of the Natural Gas Index (XNG). The index had just broken to the upside of a consolidating-triangle pattern, and I wrote, "It doesn't get any better than this."
 
Here's an updated chart...
 
 
Oil and natural gas stocks have had a terrific run. If you took my advice back in mid-March, then you're sitting on some pretty nice profits. Now it's time to take those gains off the table.
 
The sector is extended, and we're quickly entering a seasonally weak time of year for these stocks. There may be a bit more upside remaining, but the majority of the bullish move is now behind us.
 
Here's a chart of the bullish percent index for the energy sector. It's a terrific measure of overbought or oversold conditions...
 
 
The best time to buy energy stocks is when the bullish percent index is down at 30 or below. At that level, the stocks are oversold, and further downside is limited. Right now, though, the bullish percent index is above 85. That's an overbought reading that typically leads to swift corrections in the sector – at least it has over the past few years.
 
You certainly shouldn't be buying natural gas stocks at current levels. And selling them makes a lot of sense to me. In fact, just yesterday, we took another profitable trade off the table in the S&A Short Report.
 
I'm not bearish on natural gas stocks, and I'm not advocating short positions. But right now, the risk in the sector outweighs the potential rewards. And there's no harm in taking a few profits.
 
We'll keep a close eye on the sector's bullish percent index. When it drops back down to about 30, then we'll look to jump back into the gas trade.
 
I'll let you know when that happens.
 
Best regards and good trading,
 
Jeff Clark




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%