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LOOK REPORT #16: XNG Index Background: Quick Look Reports will look at a possible dominant trend in an Index, Equity or Commodity and some possible long-term (monthly/yearly) trends which could emerge from the dominant cycle(s) (the datasets will be either daily, weekly or monthly). Quick Look Report # 16 looks at the daily closing prices of the AMEX Natural Gas Index (XNG) from 1994 through Dec 08, 2005. The seven primary monthly cycles in the daily XNG are: 90, 130, 190, 240, 390, 530 and 935 days. There are also seven smaller “trading” cycles at 3, 5, 11, 19, 25, 43 and 55 days. In particular, the 11, 19 and 55 day cycles show up in many equities, indexes and commodities in a “rally mode”. This type of approach always seems to find seven large “trending” cycles in virtually all major Indexes/commodities and seven smaller “trading” cycles which has the consequence that none of these markets are actually random but appear to be the direct consequence of world political and Central Bank “monetary policies”. This has been going on for perhaps decades in the DJIA and S&P 500 since the appearance of a US fiat currency (or centuries in some commodities such as gold, silver, corn and wheat). It is a result of large pools of liquidity (which are now probably multi-trillion dollar trusts) moving periodically (over sufficiently large time periods so as to cover a generation(s) and thus not readily perceptible to the investing public/brokers) between bonds, currency, commodities, real-estate (asset classes) and equities. We mentioned in an earlier article (just after Katrina hit) that there was probably significant damage to the natural gas/oil platforms and infrastructure (i.e., undersea pipelines) that would significantly impact oil and natural gas supplies (i.e., as well as price increases with 45 to 60-day phase lag). The combined Katrina/Rita events would probably cause a “DC shift” upwards in the base of the overall XNG Index but the major cycles would be expected to remain intact but with possibly increasing amplitudes. Europe has quit sending refined gas in early November to the US so the fun at the pump starts again after the New Year. Chart 1 shows the correspondence between the actual daily closing prices of the XNG versus the seven major and minor daily cycles in the XNG Index over the period from 1994-2005. The largest cycle in this prediction is the 935-day cycle (i.e., around 44 months or one-half the period of the proverbial seven-year cycle). I suspect there maybe a seven-year cycle in this commodity but the dataset was not long enough to determine this but since the XNG follows the Oil Index the seven year cycle should be present. Chart 2 presents the 935-day cycle in the XNG Index and suggests: “look at what we found Momma!” A huge trading-type cycle at 935-days in the AMEX XNG since 1994 (and much earlier). The past bottoms occurred on/about the dates: Sept 20, 1995; June 03, 1999; Dec05, 2002 and past major tops on Aug 06, 1997; Feb 13, 2001 and Oct 07, 2004. It might prove interesting to look at the natural gas futures trading specialist’s logs on/about those dates and see whose names keep popping-up!? “Hey, don’t bring any snakes into the House – go play outside with them!” Chart 3 gives the predicted waveform for the 935-day cycle from Jan 2006 thru Dec 2008. The next predicted bottom in this baby comes up on May 29, 2006 and let the fun begin in XNG Index. We have a drilling “free-for-all” going on in Canada (16,000+ new wells per year) to supplement the loss of the Gulf of Mexico production and possibly some new fliers (IPOs) in Canadian Natural Gas Trusts over the next five years – just keep sending those monthly dividends South! For Canada, it is easy money with all that supporting natural gas infrastructure already in-place as well as removing all hedges on natural gas futures. Little gold companies (they are called explorers!?) who hold Alberta mineral leases are now drilling gas wells and forget the gold mines – who needs it? So how much (unhedged) natural gas will you need next year California? It is going to be Enron**2 all over again! Chart 4 offers one possible prediction for the XNG from Jan 2006 thru Dec 2008. It looks like a major double top will be forming in the XNG in late 2006 with a nice upward move thru April 2008. All of this is scheduled to begin in the summer of 2006 as natural gas prices may drop (or tend to bottom) when Canada refills America’s gas tanks. Remember the Summer of 2006? Summary: After May 29, 2006, the AMEX XNG Index is setting-up for an extended upward move based on the continuation of the 935-day cycle. A significant number of the major cycles maybe coming together in unison after Aug 2006 for a little ride on the Amex XNG Train (then later we will ride the LNG Cruise Lines). There is not much America can do about it for the next eighteen months except pay The Man At The Pump. Thanks for all your great long-range planning Congress (beginning in 1974) to make America Energy Dependent – you have succeeded admirably! Take another bow OXY – Congress gave away California’s oil fields to you for a song. How many people does it take to change ownership of an oil field in California? Only one – all the others ARE there to share the experience (OR WEALTH)!
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INFORMATION DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, the author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments. |
