Natural gas has been in a major glut due to localization issues and a surplus of supply due to hydraulic fracturing being used in horizontal wells, specifically shales such as the Marcellus Shale and the Haynesville Shale. This surplus finally lead to an initial bottom for natural gas in April of this year when we covered T. Boone Pickens calling a bottom. This lead to a 50%+ move since then giving many of our followers substantial gains over the last six months. Is the rally coming to an end? We don’t believe so, read on and weigh in on it yourself.
A major bottom is significant for two reasons, both equally important for trading.
- The low price is in place
- The market should trend higher for an extended period of time
Thus is the case for Natural Gas. The weekly chart below shows that Nat Gas has been in a bear trend for 6-1/2 years. During this time the price of the nearby futures contract has declined from a high of 15.780 (Dec. 2005) to a low of 1.902 (Apr. 2012), a decline of 88%. I think this qualifies as a bear market.
The daily chart now shows a decisive and massive complex H&S bottom in the March 2013 (and all other) contract(s).
A multi-year bullish trend has begun. The initial target is the 2010 high above 6.000. I must point out that trends are all subject to backing and filling. Nat Gas will be no different. The market has already had a good run. Traders should look for periods of weakness (10 to 15% dips) to be a buyer.
Here are two ways to play the natural gas rally: $UNG $UNL
United States Natural Gas Fund, LP (UNG) is a limited partnership. The Company is a commodity pool that issues limited partnership interests (units) traded on the NYSE Arca, Inc. (the NYSE Arca). The investment objective of UNG is for the changes in percentage terms of its units’ net asset value (NAV) to reflect the changes in percentage terms of the spot price of natural gas delivered at the Henry Hub, Louisiana as measured by the changes in the Futures Contract on natural gas traded on the New York Mercantile Exchange (NYMEX) that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case the futures contract will be the next month contract to expire. The Company’s general partner is United States Commodity Funds LLC (the General Partner) and is responsible for the management of UNG.
The United States 12 Month Natural Gas Fund, LP (“UNL”) is an exchange traded security that is designed to track in percentage terms the movements of natural gas prices. UNL is a commodity pool organized as a Delaware limited partnership that issues units that may be purchased and sold on the NYSE Arca. When calculating the daily movement of the average price of the 12 contracts, each contract month will be equally weighted. It is not the intent of US12NG to be operated in a fashion such that its NAV will equal, in dollar terms, the spot price of natural gas or any particular futures contract based on natural gas.
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