Tuesday, March 23, 2010

Sifting through Cramer’s Picks in Natural Gas

I caught Jim Cramer’s show (mad money on CNBC) last week where he talked about Devon Energy (DVN)- Buy!Buy!Buy! - Natural Gas in general http://www.cnbc.com/id/33509810/Cramer_s_Top_10_Natural_Gas_Stocks?slide=2.  It made me want to go to the Mad Money website and see what other Natural Gas stocks Cramer thinks will benefit from rising Natural Gas prices.  Seeking a way to pick the best of the 10 and generate a little yield, while Natural Gas prices hover in the $4 range, I loaded his 10 picks to see what would pop out (XTO, CHK, APC, DVN, UPL, EQT, RRC, HAL, CLNE, FSYS) for Option Yield and Performance Relative to the S&P 500.  I filtered for stocks that have underperformed the S&P 500 (given the decline of Natural Gas prices over the last year.  4 of Cramer’s picks outperformed the S&P 500 over the last 52 Weeks- CLNE, FSYS, HAL, APC).  Then I looked for Option Yield by indentifying the 2nd Out of the Money (OTM) Call in the 3rd Expiration Month (Far Term).  On the landscape below (Left Side), all the Green stocks have an option yield of at least 3.5% until June/July and have underperformed the S&P 500 over the last 52 Weeks.  I look for stocks that have recently underperformed as one of the criteria for initiating a buy write (the market has already given you the cheaper entry point). Option Yield Performance:  Green is higher yield (over 3.5%) and Red is lower yield (under 1.5%) and Tall buildings have higher 52 Week Price Performance Relative to the S&P 500.

Cramer's Picks 

One Month News Sentiment: Green Positive News Sentiment Score, Red Negative and Tall Buildings (Top of the horizon) More Positive Scores, Tall buildings (under the horizon) More Negative Scores.

On a yield/underperformance basis, CHK, UPL and RRC looked like the best of the group.  I decided to add one more indicator (News Sentiment Scores – Above Right) since I found that UPL was suffering from recent bad news (One Month Short Term Sentiment Score) and has yet to uptick (note the plunging red building, worst of the group in a poor environment for Natural Gas in general).  CHK (Chesapeake Energy Corp.) looked to have slightly improving News Sentiment (One Month Short Term News Score) of the Goldilocks Variety, not to hot, not to cold, and would best fit my strategy.  I included a two year price chart for CHK to see what the future might hold with a rise in Natural Gas Prices (CHK made a 5 year high at the top of the Natural Gas market in the early second quarter of 2008 ). While long term potential looks positive, it is nice to have some yield in the short term.

Created in AlphaVision with RavenPack News Sentiment Scores and option data from Hanweck and ACTIV

To use this view, download AlphaVision Professional, then download both views (Far Term OTM2 Call Yield and One Month News Score from our View Library.  Your AlphaVision subscription must include RavenPack data for the News Scores (call us for a free trial).

If you need assistance, just email support@aqumin.com or call 713-781-2121.

For more research on using News Sentiment Reversals for trading go to:  http://ravenpack.com/research/sentimentreversalspaperform.htm

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