Double-bottom formations look like a “W.” When a stock drops to the same point twice, that point becomes support for higher movement. That makes this pattern very bullish.

With average gains of 40%, it's hard not to jump in and play.

This formation has a duration of three months, which sits perfectly with our seasonal theories of the underlying asset -- natural gas.

But several things need to happen first before we start positioning ourselves in any natural gas plays…

First, natural gas prices need to find support here at the $7.40 level. They cannot dip too much further or this formation will cease to be a double bottom. That said, it appears that we are finding support here.

Next, natural gas will have to climb up to its breakout point, which is the highest point between the two lows. In this case, that point is $9.05 (using January futures).

From here, you might think we're off to the races. After all, a 22% rise up to the breakout point is pretty substantial. But let me caution you: Double-bottom formations have a failure rate of 64%.

That's not a number to inspire confidence.

But here's where waiting can really pay off. Let's say we wait for natural gas to climb a mere 5% above its breakout point of $9.05. That point puts natural gas at $9.50 or $9.51. Waiting that extra little bit drops this formation's failure rate all the way down to a measly 3%.

And that's very playable.

There's more good news. That 40% average gain begins at the breakout point. So should this be a double-bottom formation, you might see natural gas rise to $13.16 before the heating season is over.

I'll keep an eye on natural gas prices, and once we get to the breakout point, I'll be issuing a play or two here in Market Report.

With such potential in natural gas, companies are committing gobs of money to further exploration, especially here in the United States. I've told you numerous times before about a possible $25 billion in development flowing into the Rockies over the next five years.

What I haven't focused on are the large number of independent oil companies doing the same thing.

We expect Big Oil to spend a lot on exploration, but more and more recently, smaller, independent companies are leading the oil industry boom.

Charles R. Perry published an article on MarketWatch.com early this morning. He is chairman of the board and CEO of Perry Management, Inc., and also chairman of the board and president of Perry Gas Processors, Inc. He is of the opinion that we are in an oil industry boom. You may say he's a bit biased, but he can back his opinion up.

For example, during the last boom in the 1980's, the United States had 5,000 drilling rigs active. Today, we've got only 1,800, but we're spending more on each rig. When the oil industry is spending more, it means that industry is booming, and “economic activity” is high in the industry.

This is mainly due to higher oil prices. Oil companies can afford to spend more on advanced technology with higher prices.

The other thing higher prices have done is introduce more players to the game.

In the article, Mr. Perry notes, “Another difference today is the absence of big oil companies in drilling domestic wells. The boom today is an independent oil producer's boom. However, as has happened in the past, we already see a consolidation of the smaller oil companies. In the past, these smaller companies have sold to major oil companies. Today, they are merging and selling to other large independent oil companies.”

That spells more “boom” for the oil industry.

So check out some independent oil companies and see how they match up against your Big Oil behemoths. You might be surprised by the results.