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Energy on the move

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Energy prices continue to climb today as tensions in the Middle- east build and the U.S. economy continues to show some signs of economic recovery. One area that we've been looking for bullishness in recent weeks is the natural gas complex and the futures market is active again today.

June Natural Gas futures (ng02m) are jumping higher by 3.12% to $3.66/btu (british thermal units) and look eager to test the $3.76 level near-term. Support for the natural gas futures now looks to be firm above the $3.00 level.

June Natural Gas futures (ng02m) - Weekly Interval Chart

Lots of attention is being given to the rise in oil prices and many think it is simply due to tensions in the Middle-east. Here's a thought. The U.S. doesn't import Natural Gas from the Middle-east. In fact, Canada, Mexico's gulf area and the United States are big producers of this commodity. The rise in price here looks like demand is growing, most likely due to some growth at the industrial level.

Hanover Compressor - Weekly Interval Chart

I think a bullish trade in Hanover Compressor (NYSE:HC) is perhaps the most attractive longer-term bullish play in the market right now. There looks to be a near-term inefficiency found between HC and the Natural Gas futures right now. We saw something similar not too long ago between Copper prices and Phelps Dodge (PD). Not long after, the MARKET also saw that "inefficiency" and PD played some catch up, putting money in a bullish trader's pocket in Phelps Dodge. I think the same thing will take place in HC within the next week or so.

We will note that HC traded a triple-top buy signal today with a trade at $18.50. The bar chart sure hints that some old bulls sold the bottom near $10. If they come back and there's little stock for sale the stock could jump quickly to the $25 level if natural gas prices hold near their 61.8% retracement level.

For options traders, I like the HC September $17.50 calls (HCIW) currently offered $3.60, or the out-the-money September $20 calls (HCID) offered $2.40. No stop and willing to sell strength between $28-$30.

Jeff Bailey
Senior Market Technician
Option Investor

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