- Weekly inventory data gives you trading entry and exit points.
- Fracking news will also provide trading opportunities.
- Seasonal trends will provide trading opportunities.
My previous article gave a brief summary of the very attractive long- and short-term opportunities in natural gas. My next few articles will provide you more detail on both. Today we discuss the trading opportunities.
Using the ETF, (NYSEARCA:UGAZ), with its 3x characteristic linked to the move in natural gas, it naturally has more volatility. As such, it is great to use as a trading vehicle.
I have strong conviction in the long-term positive direction in the price of gas given it's cheaper and cleaner characteristics and given the supply/demand picture now versus the last five years and given that the price is down approximately 80% over the last 5 years. As such, I trade regularly around my long position.
What gives you trading opportunities? At least 3 regular events:
Every Thursday, the US inventory numbers are released and the price of natural gas reacts almost weekly to it. So depending on the reaction and the overall price, a trading opportunity arises. UGAZ has been peaking between the high 30s and low 40s and bottoming in the high teens and low 20s over the past year or so. So clearly, I am more inclined to buy and trade at the lower end of that range and sell more at the upper range but even in the middle where it has been the last few weeks, there are trades to be made. Just this week, (UGAZ) moved approximately 10% on the inventory data.
Second, since fracking, which has greatly increased the supply of gas, is environmentally controversial, any news about its curtailment will cause short-term spikes in natural gas. You can trade that news too. Of course, any broad national or international curtailment or ban would significantly increase the price though that seems unlikely right now.
Third, since natural gas use is very seasonal, once you get to know the trends in winter versus summer, you can adjust your trading accordingly. Much colder winters will increase demand and cause higher prices and less inventory. Approximately 50% of all US homes are heated by natural gas. This past winter was particularly opportunistic for trading because of the cold and many storms. And this past winter will probably influence the price this summer and next winter as producers try to replenish the depleted inventory. Carefully watching these developments will also provide trading opportunities.
More to come soon on natural gas!