Are You All Gassed Up?

12/17/09 08:51:27 AM

by Koos van der Merwe

The name of the game is energy, and gas is one of the cheapest available, but the gas has to be conveyed, and by pipelines. So what about a company that has both gas and the pipeline?

Security: EP
Position: Buy

El Paso Corp. (EP) provides natural gas and related energy products in a safe, efficient, and dependable manner. The company is organized around two core businesses, pipelines and exploration as well as production. The company owns North America's largest interstate natural gas pipeline system — approximately 42,000 miles — transporting more than a quarter of the natural gas consumed in the country each day. Some of their pipeline assets are owned by El Paso Pipeline Partners, their master limited partnership. Pipeline group highlights are:

-42,000 miles of pipeline
-Largest US pipeline
-More than a quarter of daily US throughput
-Key natural gas basins (on-shore US, offshore Gulf of Mexico, Brazil)
-Top 10 among domestic independents
-2.3 trillion cubic ft. equivalent of proved reserves (as of 12/31/08)

FIGURE 1: EL PASO, WEEKLY

Graphic provided by: AdvancedGET.

Figure 1 is a weekly chart and shows how the share price moved from a low of $6.57 in March 2004 to a high of 22.47 by July 2008. From that level it dropped to a low of $4.45 by November 2008. From that level, with a buy given by the relative strength index (RSI) and forming a double bottom, the price has started to recover, and is currently trading at $9.78.

What now for the future? Natural gas prices are currently rising because of the cold weather, which will boost the share price of El Paso Corp. For the answer, I look at my daily charts.

FIGURE 2: EL PASO, DAILY

Graphic provided by: OmniTrader.

Figure 2 is a daily chart showing the following:

-The price, which is currently below the trailing stop level.
-A buy signal given at the present level by the stochastic RSI cycle indicator.
-The price has penetrated the basic Fibonacci level and should now be rising to test the 10.17 level.
-A candlestick harami pattern. This means indecision and a possible trend change. The trend change did indeed occur, and the price started to move higher.
-The moving average convergence/divergence (MACD) of the high plus volume histogram, which is suggesting a buy.
-The vote line as suggested by the OmniTrader program, which has given a buy signal with an advisor rating of 81 (not shown).
-Volume has been falling as the price rose, a negative.

With a colder winter expected resulting in an increase in the price of gas, El Paso Corp. is a share that could be bought for a short-term hold.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.