With Today's Plunge in Natural Gas, It's Time to Rebuy Chesapeake Energy

03/09/2015 5:37 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Given today's plunge, coupled with the warmer weather forecast and start of the shoulder season of weaker demand, MoneyShow's Jim Jubak is rebuying shares of the second-largest natural gas producer in the US with an initial target price of $19.

Back on February 3, I sold Chesapeake Energy (CHK)-my favorite stock for playing volatility in the price of natural gas-out of my Jubak's Picks Portfolio.  The rally that had taken the share price from the December low of $16.71 to $21.01 was a bounce, I said, rather than the beginning of a sustained recovery. (See my post on the sell here.)

The stock closed even lower than that December level today, March 9, at $14.24. That's near a new 52-week low for the shares and is closing in on the five-year low at $13.59.

I think it's time to rebuy-maybe for another trade after a bounce, maybe for a more sustained recovery-we'll see. Tomorrow, I'll re-add these shares to my Jubak's Picks portfolio.

The big blow to natural gas prices today is a weather forecast calling for warmer temperatures in the eastern half of the country. (It's 54 degrees in New York City as I write this on March 9.) That took the price of natural gas for April 15 delivery down to $2.69 per million BTUs. That's a 5.39% drop on the day. Shares of Chesapeake fell 6.13% on the drop in gas prices.

The 52-week low to high swing in Chesapeake is $14.22 to $29.92. The bottom of the Bollinger Band on these shares is at $13.99.

Of course, just because these shares are near the 52-week and five-year lows doesn't mean they can't get cheaper. Somewhat cheaper wouldn't be a huge surprise since we are entering the shoulder season of weaker demand that falls in between the winter heating season and the summer cooling season. I think the odds are against a huge drop from here.

The 50-day moving average for these shares is $19 and I'd expect that to represent the first serious resistance on any move upwards.  I'd set that level as my initial target price.

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