Is the Natural Gas bear market over?

Discussion in 'Commodity Futures' started by Ghost of Cutten, Jun 5, 2012.

  1. A few reasons to think the bear market might be done:

    1) After a long and major bear market decline, there was a very large, sharp rally of 35% in a month recently
    2) After trading much weaker than the rest of the energy sector (crude, gasoline, heating oil) for a long time, NG is now trading much stronger than its related markets. E.g. today it is up big despite energy in general being flat to slightly down.
    3) Sentiment is still bearish despite the constructive recent price action
    4) Natural gas reached 15xATR below the 200 day MA, a very overextended position. Even now it is still way below the 200 day moving average.

    With the recent sharp correction (18% in just over a week, retracing 70% of the prior big rally), and the rebound in the last 2 days, there is a nice entry point here. A logical place for a stop would be the recent lows (2.31), and a move below 2.25 on a closing basis would definitely prove the trade wrong. Call options of 1-3 months expiry would also be a decent way to play it.

    If the bear market is over, then one would expect prices to rally to a bit beyond the next major resistance point, currently around 3.10-15, before any significant further correction. This would also roughly coincide with the 200 day moving average, so it seems a decent profit target.

    Any thoughts?
  2. jj90


    No heavy research here, but my musings on NG is that with so much of it around and capacity still growing, it would make more sense to be long companies that use NG as an input or companies that offer NG end user services. NG may never break the $2 mark, but how long do you mind rolling over to see $4-5? I know guys still holding NG from late 08' early 09. A lot of overhead.
  3. rdg


    I like it. It was the sentiment that really got my attention after this rally. For so long we've seen people buying into every break. Now longs work a bit and it's just silent.

    There's not much scientific in there but I get the impression that people are scared to get long. "It's too high at 2.40 because it's 50c off the low. Hell it's probably a good short since it's such a POS." Etc, etc.

    I obviously don't know if this is a real turn, but I agree that R/R is solid here. I think it's the best long opportunity we've had in NG for 2+ years.
  4. NG needs a long cold winter
  5. ^^Or a hot summer, or a hurricane(s), or big mon-ied corporations to stop interfering with the politics of shipping NatGas out of the US.

    Or we get more regulation by states regarding fracking ... haha... that would be as popular as yellow snow in an election year.

    I still think we could re-test 2$ ~ even though I'm long Coal stocks I kinda hope we do re-test 2$ cause that will be a very clear double bottom.
  6. I don't know about my numbers but I watched tv show on NG shipping, and there is something like only 8 ports that can receive NG. It's one of those things that always goes right, but when it goes wrong it blows up not just the ship, but about half the port.
  7. I wait for timing factors on all my trades - timing is what distinguishes a trade from an investment. If the market is not above $2.50 in say 2-3 weeks, I'll probably exit. If it's below 2.25 I'll almost certainly exit.
  8. Not looking good at all on today's action. Unless there is a major rally later today, I'll exit at least half on the close.
  9. Daal


    Do you have good success in these trades that seem purely technical(I guess with a contrarian juice to it) compared to trades that are both technical and fundamental?
    I assume you haven't done deep research on nat gas supply and demand
  10. They have lower success rate for sure, and I trade them smaller size (usually 0.5-1% risk). And yes I've no fundamental input here.
    #10     Jun 7, 2012