Themed Watchlist 4 (continued) – Baby It’s Not Cold Outside

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Themed Watchlist 4 (continued) – Baby It’s Not Cold Outside

I wrote last time on insurance companies and how our themed watchlist should now include them on the short side. My TA on the weather back in October has proved right in doubting a cold winter. Even if it gets cold now, it’s been so mild that energy companies must be hurting.

2015 has already proved the hottest on record and energy companies must be losing out on revenue hand over fist. Not to mention the inevitable costs involved in remedial work caused by floods. So let’s have a look at the Energy Sector. Well first off, it’s two sectors: Electricity and Gas, Water and Multi-Utilities.

The GW&M sector looks to have completed a quite laid back and leisurely H+S. A long time coming, it seems to be taking its time falling too. Lots of things have been happening in slow-mo ever since the crash. Over six years in the bull market is pretty leisurely too. Will more rain mean water companies make more money? I’ve never really thought about what sort of conditions make them a lot of money. Long hot summers seem to lead to hose pipe bans so that can’t be it. Freezing weather destroys their infrastructure. I would guess they’re suffering with repair work from floods too. Is there even a perfect scenario for them?

NMX7570 160104

So with a set-up like this we should perhaps be looking for the leading edge. Which is the company that starts the fall? Oh and there it is. Centrica (CNA). It’s at a support level after what is a pretty spectacular downward trend from ’13. A bounce and another right shoulder could really nail this one. The stock is now down to 2006 levels. It’s also at 50% of its ATH, an important level in Gann analysis called G1. A failure at G1 should result in a fall to G3 (25% of the ATH). So broadly speaking we’re looking at 400 ATH, thus 200 and 100. So a failure at 200 could produce a decent fall.

CNA 160104

Note that we are looking at a monthly chart here, but that’s fine, as our Met Office Report that underlies this watch list is about the coming two years. So we have time. I’ve marked the Gann levels and the ATH. An overshoot to the support level at 120, now so long ago it’s hard to imagine it will be an emotive price point for anyone. Whereas 100 is a psychologically significant number and probably will be.

The Electricity Sector is similar and slightly less appealing. It too looks weak but it’s only got two constituents and one is strong (SSE (SSE)) while the other is weak (Drax (DRX)), so we can’t take much from that. Certainly a sector play is not a very bright idea with only two components! In any case we’ve got a broader basket in the GW&M sector and that will no doubt include some electricity as well. It’s gas we’re after I suppose, as heating will have been consuming less gas than predicted, especially if the energy companies were expecting a cold one.


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