The Other Battle For Ohio: Natural Gas

I am told that Ohio is a battleground state. I can see why. There is natural gas underneath everything, so that makes sense. And the battle is raging as we head into the season. The natural gas season that is. For those of you outside of the area, two companies, American Electric Power (AEP) and First Energy (FE), service the northeast portion of the state and they are going at it like they are UFC champions. I have seen deals for guaranteed pricing for more than 7 years! And there is a clear winner so far. Take a look at the charts.

American Electric Power (AEP)

AEP has been the one picking up subscribers and it is easy to tell from the chart. A solid trend higher since mid-May and at a double top resistance. A move over 44 carries a Measured Move higher to 45.50. The Relative Strength Index (RSI) is bullish and the Moving Average Convergence Divergence indicator (MACD) is about to cross to positive. Both support further upside. But the bearish engulfing candle Monday raises caution.

If confirmed lower Tuesday, it is a reversal signal. In the other corner, First Energy also had a great spring and early summer but looks like it took a few roundhouse kicks to the head and a sleeper hold since early August. After falling from 50 to 46, it made the Measured Move lower to 42 and is consolidating but still looks vulnerable. The RSI is oversold but working higher and the MACD is moving back toward the zero line.

First Energy (FE)

Both are positive but suggest consolidation when taken with the price action making a retest down and finishing on the low. A Measured Move lower now takes it to 38. But it is when you put the two together in a ratio chart, as below, that a trade opportunity arises.

The ratio up at 101.3 printed a solid black candle Monday, indicating intraday bearish activity, with a RSI that is near 90 and a MACD near zero. It is 13% above the 50 day Simple Moving Average (SMA), more extended than it got at the least peak in January, and about the same as when it pulled back slightly in early August. It appears a pullback in favor of First Energy and away from American Electric Power, is in order. The question is will it be like early August or January?

Trade Idea: Buy 1 FE and sell 1 AEP with a stop at a ratio of 1.025

Disclaimer: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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