Over the last year, the energy sector has been a tough place to operate, as oil and natural gas prices have remained low. The low prices for the commodities have led energy companies to report losses for most of the year.
Cheniere Energy (NYSE: LNG) is no exception. It has reported losses in each of the first three quarters of 2015. However, I don’t think that continues in 2016.
Natural gas is approaching $2 per million British thermal units. Over the last 20 years, natural gas has dipped below $2 on only a few occasions, and each time it did, the price didn’t stay there very long. In fact, in 2012 the price dipped below $2 in April and then doubled over the next year. At the same time, Cheniere Energy stock went from $18.31 to $28.48 a share, for a 55% gain.
Looking at the charts, I found little things on the daily and weekly charts that were encouraging, but it was the monthly chart that got me the most excited about Cheniere.
On the daily chart we see that the stock has been declining for most of 2015, but we also see that the stock price has stabilized in recent weeks. Look at how the stock fell below its 50-day moving average and stayed below the trend line for almost seven months. Now we see that in the last few days the 10-day moving average crossed back above the 50-day moving average for the first time since late April, and the $45 area seems to be acting as support at this point.
The weekly chart shows how the stock price has stabilized in recent weeks, but it also shows how oversold the stock was in late September. The 10-week RSI reached the 20 level, which is the first time since October 2008 that the stock has been so oversold.
From the beginning of October 2008 through the high in September 2014, Cheniere Energy stock increased by 3,600%. It went from $2.25 per share to over $85 per share. Not a bad return over a six-year period.
We also see that the weekly stochastic readings just made a bullish crossover, which is encouraging as well. In 2012, when the stochastic readings made a bullish crossover, the stock went on a tremendous run that saw the stock price increase approximately sevenfold.
While the items of note on the daily and weekly charts are encouraging, it was when I looked at the monthly chart that I was convinced that the technical picture for Cheniere Energy is a good one. Look at where the stock is finding support right now: right at the $45 level. Look at where the stock found resistance from 2005 through 2007. So many times we see former resistance act as support on a pullback.
In addition to the charts pointing toward a rally, the sentiment picture for Cheniere is pretty bearish right now, with a short interest ratio of 7.87 and a put/call ratio of 1.27. The average put/call ratio for Cheniere is right at 1.0, so the bearish sentiment from option traders is a little elevated right now.
Overall we see a stock that seems to have found support on the daily, weekly and monthly charts and is the most oversold it has been in seven years. The sentiment toward the stock is bearish, which is a plus from a contrarian viewpoint, and you have fundamentals that are being temporarily hurt by low natural gas prices. When you add all these things up, you get a great long-term opportunity that could boost your portfolio tremendously over the next five to 10 years.
I would look to buy Cheniere Energy stock at the current price and hold it as a long-term investment. I would use a move below the $40 level as a stop-loss point.
Laughing all the way to the pump!
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