Friday, September 21, 2012

Would you buy this stock?

Thought I would try a little game here on a Friday afternoon. Without knowing what stock this is and using only the chart and moving averages, would you buy this investment?

Natural Gas Storage- too early to tell if trend is changing

First off, I do not actually forecast natural gas storage levels. I may say I expect this level, that level, or that I think current storage levels will likely be inline with the 5-year average over some time frame. However, these are not forecasts per se. My "forecasts" are more observational and based on the analysis of the trend in current natural gas storage levels versus the 5-year average- relative storage levels.

Natural gas storage levels are highly seasonal and subject to fluctuations due to factors that are unobservable in real-time, at least cost-consciously observable. That said, the trend of relative storage levels appears are more stable and I think that a good deal of information can be obtained by watching this statistic.

Since peaking in March 2011, relative storage levels have declined dramatically, as the current natural gas injection rates have come in well under the 5-year average rate. The following is the historical relative storage levels.

I continue to think that the natural gas storage levels will approximate the 5-year average later this year. However, the September 14 injection rate of 67 Bcf was far above my trend-derived forecast and the 5-year average injection rate of 61 Bcf. Does this suggest the trend is about to reverse? I think it is too early to tell. The rolling 12-week slope of the relative storage levels is beginning to turn, suggesting that the pace of the decline is slowing, shown below.

That said, I think it is too early to say that the declines in relative storage levels will fully reverse and turn upward. I think the pace of decline is decelerate, as we approach the winter heating season and demand picks up. In addition and if forecasts for a cold and snowy winter pan out, the rate of the decline in relative storage levels may re-accelerate.