Not the Time to Be a Hero in Natural Gas

  • SumoMe

Since its early March low, natural gas (using the ETF ticker UNG as a proxy) has rallied +37% to a June high of $7.95 a share.  Not bad.  And as the advance has continued I read more and more bullish prognostications for higher prices still.  Human nature seems to dictate that the further an advance extends the more bullish people become.  Which leads us directly to:

Jay’s Trading Maxim #306: Human nature can be a detriment to trading success and should be avoided as much as humanly possible.

(See also Wild-Eyed T-Bond Speculation (Sort of))

Figure 1 displays the current status for ticker July natural gas futures.  Note the obvious overhead resistance point at $2.63-$2.64.1Figure 1 – Overhead resistance for natural gas futures (Courtesy ProfitSource by HUBB)

In addition, we have entered a seasonally unfavorable period for natural gas at the close on 6/15 (June Trading Day #11).  This unfavorable period extends through 7/21/16 (July Trading Day #14).  Figure 2 displays an equity curve generated by holding a long position of one natural gas futures contract during the June TDM #11 through July TDM#14 since 1990.2Figure 2 – Long 1 natural gas futures contract June TDM #11 through July TDM #14; 4/4/1990-Present

By no means a bearish “sure thing”, but not a very pretty picture in any event.

The performance of the ETF ticker UNG during the “unfavorable” time frame appears in Figure 3.


Figure 3 – UNG performance during “seasonally unfavorable” June/July time period


So does any of this guarantee that natural gas is sure to decline in price between now and late July?  Not at all.  Should you sell short as much natural gas as possible?  Not necessarily.

But as the title implies – while natural has could certainly break out above recent resistance and surprise to the upside (see 2012 results in Figure 3) – I can think of other things to do with my money for now.

Jay Kaeppel