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Why Shorting NatGas Makes Sense Now

That rare and wonderful thing, the regular reader of my ramblings in these pages, may remember that four weeks ago I wrote that, while natural gas may have further to drop from the levels at that time, it was a solid buy once there was a sign of slowing momentum and a turnaround. I try not to toot my own horn too much, but here is what happened in that market since then.

(Click to enlarge)

That was, I guess, not a bad call, but it is now time to reverse it. The things that partially drove that call, higher WTI prices, increased natural gas exports, cold weather forecasts and a small but persistent reduction in stockpiles have all continued and are still happening to some extent now. The main reason for it though, that markets have a tendency to overshoot, particularly in times of volatility, now applies in the other direction.

It is not that natural gas cannot go higher from here over the long term; it obviously can as it was up around $5 just a couple of years ago. The fact that it can, though, doesn’t mean that it will. The history of natural gas pricing since the lows were hit back in March of this year has been wild, but consistent. It is one of upward momentum, but with volatility. Each strong run up has been followed by a mostly quick and steep retracement, especially since August. Most of the time the strongest gains have been in the day or two before the drop came, so this morning’s backing off after a big gain yesterday should…

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