Natural gas prices have appreciated 13% in the last 4 weeks lifting futures to within pennies of the 61.8% Fibonacci level seen on the chart above at $3.70 on the May contract. As one can see this has put the stochastic in the daily chart at overbought levels. I believe the money has been made on the bullish trade and those wanting exposure in this commodity would be better positioned in bearish trade. The last 2 occasions prices were at these levels they were met with selling...in December and again in January after trading around these same levels prices retraced over 50 cents on both occasions. Past performance is not indicative of future results.
Storage levels are abundant and we should see demand continue to taper off so fundamentals do support a move south. Markets always do not trade off fundamentals though so I would like to see confirmation from a technical standpoint. Typically when both fundamentals and technicals say buy and both say sell I feel better about the trade.
Gaining bearish exposure via futures with some options protection would be my favored play at current levels. I would try to capitalize on a drop of 20 -30 cents in the coming weeks. This would get the May contract back near the 50 day MA; identified by the green line on the chart above. I would not bet on prices trading under $3 any time in the immediate future. But I would not rule out a challenge of the recent lows that have held in 2013. A complete retracement would equate to a loss of just better than 10%.
By. Matthew Bradbard
To discuss in more detail this chart or any other you can reach me at: mbradbard@rcmam.com or 954-929-9997
Risk Disclaimer: The opinions contained herein are for general information only and are not intended to provide specific investment advice or recommendations and are not tailored to any specific's investor's needs or investment goals. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions ("Forex") before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results.
I have over 1 decade of experience in the Commodities industry. Managing my own IB for over 5 years and my own CTA for fifteen… More
