Natural Gas: U-Turn Follow Up

The writer elaborated on his thoughts about the trend for Natural Gas in a previous article for Seeking Alpha posted November 23, 2009. The volume of interest and comments that this article generated surprised the writer. It appears that natural gas is a very hot topic and that there is no shortage of opinions about which direction natural gas will take from here. Also the Horizons Beta Pro Nymex Natural Gas Bull ETF (HNUZF.PK) appears to be a hot search topic on Stockcharts.com as depicted by a snapshot of the search cloud below.

Figure 1: Search Cloud for Stockcharts on Nov 25. Interest in HNU ETF was extremely high.

If the market participant was bullish about the natural gas price prospects, the double leveraged HNU ETF would be one of the choices available.

As chance would have it, Tuesday November 24th, 2009 was a hot day for the markets generally and for natural gas in particular. See the three charts below depicting the daily, weekly and the point and figure aspects for NYMEX Natural Gas Futures.

Daily View

Figure 2: Natural Gas Futures at NYMEX. Note the bottom set on September 4^th, 2009. A gain of 6% was registered on November 25^th, 2009.

Weekly View

Figure 3: Natural Gas Futures at NYMEX in a weekly view.

Point & Figure View

Figure 4: Point and Figure Chart for Natural Gas Futures. Note the target objective of $11.25.

Natural Gas gained 6% for the day while the HNU ETF gained a remarkable 15%. The last chart gives the writer the most telling information. The algorithms are predicting a target price for Natural Gas of $11.25. It appears the bottom set in early September is still valid, and until the trend upwards is invalidated sufficiently, the price target is still standing.

What should one make of this? There are many opinions as to the sagging state of natural gas pricing; the low prices are caused by the surplus supplies, spanking new shale gas finds, the sagging financial systems or a combination of all three. For the writer, he believes all this information is already priced in, and the market is looking forward, as always. For all the criticism of the market being irrational, the market is the great dispassionate assembler of all known information and spits it out for a bottom line in the price. The point and figure chart has already dispassionately spit out a target price of $11.25. The writer will stay and enjoy the ride.

Disclosure: The writer holds a long position in HNU.

Important Disclosure

The information and opinions contained within this document reflect the personal opinions and views of the author and should be view as information for thought and entertainment only. The author may from time to time have a position in any of the securities mentioned. Any material within should not be construed as accurate or reliable or be utilized as advice for investment or business purposes. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. There are no guarantees of the accuracy or completeness of the information contained herein. These writing are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not receive or request compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.

Comments

[Dogpound]

Marco,
HNU and HND are fabulous trading vehicles, I play them regularly - they are not long term investments. If you feel gas is going up play producers or service companies for long term gains. They are excellent short term plays when trending and day trading.

Made out very well today on HND, held the shares for 20 hours. Contango favors the bear, backwardation favors the bull. Due to the monthly rolls of contracts your returns could be eroded even in an upward moving market. The monthly rolls have more to do with large gap-ups or gap downs than fundamentals.

Real time quotes are essentially when playing these ETF's - due to rampant speculation commodities like NG and Oil are already volatile enough - not to mention these ETF's are double levered.

The price of NG is not going anywhere near $11.25 in the next 18 months - nice chart though.

Natural Gas will trade violently up and down until people understand the current fundamentals - in the end gas is going lower before it goes higher. Uneducated speculating using these types of investments have hurt many people - a few I know right here in Canada.

You are gambling and good luck to you. An article like this could trap the unsuspecting investor into huge losses.

2009 Nov 27 11:30 AM

[Marco G.]

Hi Dogpound, thanks for your information and comments.

The warning to readers here: Please treat the HNU ETF with care, as Dogpound is right, it is akin to gambling and is only for those who are not afraid of losing the investment completely! The vehicle is extremely volatile and being leveraged, can leverage your losses.

That being said, the writer's opinion still is: All known news and opinions are priced into the commodity, natural gas. The writer's view is that this is bottom or close to for this season. Therefore, there should be some movement upwards.

In fact, as I type, @ about 11:45 AM EST, HNU has recovered from the morning dip and is now even for the day.

Marco G.


On Nov 27 11:30 AM Dogpound wrote:

> Marco,
> HNU and HND are fabulous trading vehicles, I play them regularly
> - they are not long term investments. If you feel gas is going up
> play producers or service companies for long term gains. They are
> excellent short term plays when trending and day trading.
>
> Made out very well today on HND, held the shares for 20 hours. Contango
> favors the bear, backwardation favors the bull. Due to the monthly
> rolls of contracts your returns could be eroded even in an upward
> moving market. The monthly rolls have more to do with large gap-ups
> or gap downs than fundamentals.
>
> Real time quotes are essentially when playing these ETF's - due to
> rampant speculation commodities like NG and Oil are already volatile
> enough - not to mention these ETF's are double levered.
>
> The price of NG is not going anywhere near $11.25 in the next 18
> months - nice chart though.
>
> Natural Gas will trade violently up and down until people understand
> the current fundamentals - in the end gas is going lower before it
> goes higher. Uneducated speculating using these types of investments
> have hurt many people - a few I know right here in Canada.
>
> You are gambling and good luck to you. An article like this could
> trap the unsuspecting investor into huge losses.

2009 Nov 27 11:48 AM

[Dogpound]

Marco,
I agree with you in the short term (1 to 2 months) - I think NG runs to test the $5.75 area due to seasonal speculation and USD dynamics. By then (mid-end January) we will have a good idea on the exit storage level from heating season and it will turn to fundamentals.

If storage is estimated to be above 1750 to 1800 BCF, with current gas shut-ins you will see gas move to low 3's by March/April. NG has a bright future in the long term, nothing like a low gas price being the best cure for a low gas price - however we are in for some volatile price movements with risk to the downside being higher in the near term IMHO.

Yesterday was a bit of gift, thinly traded due to the US holiday - I loaded up HND and sold the position this morning - got very lucky. The dollar move yesterday almost guaranteed a pull-back.

I have set my own basic rules, I rarely hold overnight, and never hold on the roll, I start with a 1/8 position, I take my profits on a 2 to 3% move. Lately I am not even speculating prior to the release of storage numbers, after the release I will take a position one way or the other. If I miss the trend I add another 1/4 then again 1/2 sometimes then a full position and once the ETF turns I take my 1-1.5% return. Once I have a full position I keep my stop very close and take the small loss instead of chasing any further. There have been some very volatile days where I have been in the bear/bull in morning and switch positions later in the day. It is definately not for the faint of heart.

Investors must also keep a close watch on the weather networks 10 - 14 day forecasts and definately have the hurricane center on his favorites.

Apologies for the tone of some of my comments - I have seen some people get crushed using these ETF's.

Good luck

2009 Nov 27 12:23 PM

[Ron2008]

NG bulls need to read this article. Not some chart saying 11.25.

U.S. imports of liquefied natural gas will rise 34 percent this year to about 470 billion cubic feet and another 40 percent in 2010, the Energy Department forecast on Nov. 10.
www.bloomberg.com/apps...

2009 Nov 30 02:12 PM