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Natural Gas Rising, Gold Falling

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In my last article I wrote about the recent disconnect between crude oil and oil services stocks.  On a relative basis, oil services stocks had severely underperformed the S&P 500 from mid-October to early December despite crude oil prices trading flat to slightly lower.  Since that article, oil prices have begun to climb a bit, but oil services stocks have significantly outperformed the S&P 500, bringing the relationship between the $OSX and crude oil more in line.  Other commodities are interesting at this time as well.

After a sharp run up in gold and VERY overbought oscillators, we've seen a significant retracement and we're nearing key short-term price support.  I expect gold to hold at this price support level.  Take a look at the chart on gold below:

Gold 1 Year Chart 12.19.09
If gold continues falling, I expect it to find near-term support in the $1070-$1080 range, with much more significant long-term support from $1025-$1050.  While gold has run into heavy profit taking after a strong surge higher, natural gas prices appear to be breaking out.  This is an all-or-nothing commodity where price swings tend to be severe in both directions.  I expect natural gas prices to climb to at least $7.00, possibly as high as $9.00-$10.00 during the first few months of 2010.  Currently, the trend is higher as reflected below:

$NATGAS 12.19.09
Until the uptrend in natural gas prices reverses, I'd be a buyer of those stocks that benefit from the uptrend.  There is a very tight correlation between the performance of key natural gas stocks and the price of natural gas itself.  I've featured one such stock - Chesapeake Energy (CHK) - as our Chart of the Day for Monday.  You can view an annotated version of this chart and see the correlation between the company's stock price and the price of natural gas by checking out our Chart of the Day.  CLICK HERE

Happy Holidays!  On behalf of Invested Central, I want to wish everyone a safe, happy and healthy New Year!

Tom Bowley
About the author: is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market. Learn More
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