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  • Why The Upcoming Sell-Off In Natural Gas Could Be The Largest Ever In History! (CFTC Data) 26 comments
    Apr 17, 2013 1:08 PM | about stocks: APC, BBG, BP, BTU, CHK, COG, COP, DVN, ECA, ELP, EQT, FST, GDX, GLD, GS, JPM, KWK, LNG, NFX, QEP, RRC, SLV, SPY, SRE, SWN, UNG, UPL, WPX, XCO, XEC, XOM

    Why the upcoming sell-off in natural gas could be the largest ever in history!

    Sifting through some data points we re-looked at the CFTC Commitment of Traders report that came for April 9th. Within it we saw a staggering figure:

    (click to enlarge)

    963,407 vs. 5,233

    These are the number of long positions by managed money and the short positions by managed money.

    having a 99.995% long position is absolutely nuts! and when this equalizes get ready for one of the largest drops in natural gas history. even if it went to a 1:1 long and shorts we would see massive (and we mean MASSIVE selling in these markets).

    This is bay far the biggest bubble we have ever seen in this product type!!!!!

    No other product type is like this and it is about to topple like a ton of bricks coming down, -just imagine an asteroid deep impact.

    We cannot over emphasize the danger in the natural gas market right now.

    Disclosure: I am short UNG.

    Themes: Natural Gas Stocks: APC, BBG, BP, BTU, CHK, COG, COP, DVN, ECA, ELP, EQT, FST, GDX, GLD, GS, JPM, KWK, LNG, NFX, QEP, RRC, SLV, SPY, SRE, SWN, UNG, UPL, WPX, XCO, XEC, XOM
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Comments (26)
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  • thanks a lot for updating the data and giving your valuable advice. it purely shows that fundamentals of NG are not supporting the present valuation in F& O segment. so one can go short in NG WITHOUT DOUBT.
    17 Apr 2013, 06:40 PM Reply Like
  • I got to hand it to you Sir Monaco, you're sticking with your guns! According to your other articles, the sell off should occur very soon. Time will tell and I hope you're right.
    17 Apr 2013, 11:41 PM Reply Like
  • to selloff or not to selloff today... That is the question
    18 Apr 2013, 09:23 AM Reply Like
  • More fuel to the bearish case:

     

    http://bloom.bg/17IIggv
    18 Apr 2013, 09:33 AM Reply Like
  • Author’s reply » we xpected an injection of 25 so 31 is right in line, very happy with the injection and look forward to many more to come....
    18 Apr 2013, 10:37 AM Reply Like
  • Yeah - - right - - "look forward to many more to come" and NG price keeps going up up up.
    18 Apr 2013, 10:41 AM Reply Like
  • Author’s reply » GJN, this round of drinks is on me. better days ahead.
    18 Apr 2013, 11:53 AM Reply Like
  • Sir Monaco, I think I am hearing the following from GS CONTROL ROOM "There is nothing wrong with your Monitor and NG Chart. Do not attempt to adjust the NG price. We are in control of the transmission. We control the horizontal and the vertical. We can deluge you with a thousands channels, or expand one single image to crystal clarity and beyond. We can shape your vision to anything our imagination can conceive in NG. For as many trading sessions as we wish, we will control all that you see and hear." We need more than a round of drinks here!!
    18 Apr 2013, 01:03 PM Reply Like
  • Author’s reply » too funny! - I almost fell off my chair laughing,

     

    you tell the GS boys to tell their top trader "Bart Simpson" to stop hitting the buy button....
    18 Apr 2013, 01:12 PM Reply Like
  • Author’s reply » now, really, these prices are completely nuts, you know , I know it, GS knows it, and the utility ceo's who all picked up the phone to buy coal knows it....
    18 Apr 2013, 01:14 PM Reply Like
  • Author’s reply » where's the investigation into the manipulation of natural gas prices...? - who did it? come on guys, fess up, who left their programmatic trading machine on this time?
    18 Apr 2013, 01:20 PM Reply Like
  • This must be somewhat embarrassing for you Sir? Your repetitious call for NG to dive under 3.50 is looking increasingly foggy? Especially since we have now advanced to 4.40 and injection season has begun. No offense intended - - just calling you to give an account!
    18 Apr 2013, 02:31 PM Reply Like
  • Author’s reply » oh, thank you very much GJN, only a friend like you would have a sticky note about my calls....

     

    it's all okay, didn't lose a penny today...just some wild action huh?

     

    it seems someone just raised the stakes and things will change, put up another sticky note to get back with me in mid-to-late may then we can see how my call really was....

     

    I would love to see how the longs react when we are continuously putting up injection numbers...

     

    one thing people didn't discuss today was that we went from -21 to +31 = 52 swing in one week!!!....and people were complaining about the rig counts...things will only get better ahead in our opinion....
    18 Apr 2013, 02:39 PM Reply Like
  • The fog is getting very thick now - - wouldn't it be better not to make such grand calls only to be found out to be so embarrassingly wrong?? Perhaps you should re-examine your earlier posts and issue an apology to those who took them seriously? Who cares what people did or didn't discuss?? Look at the current price. I'm sure will get a pullback eventually, - - but to 3.30 or lower as you claim?? In any case - - I have many sticky notes to utilize - - and I hope you won't be totally discredited in May. No offense intended - - just want some accountability!
    18 Apr 2013, 03:01 PM Reply Like
  • Author’s reply » yes, absolutely. if I'm wrong I will openly admit such....remember the bank account it where all truths are shown
    18 Apr 2013, 05:57 PM Reply Like
  • Sir Monaco - - did you read today's post by Hard Asset Investor where it was stated "A more likely scenario is that injections match the five-year average through the rest of the injection season. That would add roughly 2,003 bcf to inventories, leading to a peak of 3,707 bcf. While that's a less-bullish scenario, in our view it would still be supportive of prices between $4.50 and $5.50." ?? Not exactly the $3.30 price you are calling for.
    18 Apr 2013, 06:43 PM Reply Like
  • Author’s reply » couple points regarding this article:

     

    if this time last year we had a rig count of 650 and we only got a build of 23,

     

    then how in the heck did we get a 31 injection now with a rig count of only 377?

     

    only answer is our drilling abilities have gotten much better.

     

    with this, all the slides and projects etc, will not change our minds that we will see record injection this year which will catch everyone by surprise,

     

    this is our opinion and we will stick with it through to the summer time,

     

    As previously noted we see a true value of natural gas at $3.30, and people can do what they want....
    18 Apr 2013, 07:19 PM Reply Like
  • I liquidated my positions out of capitulation... Whenever I capitulate, it means the market reverses... It's a very precise indicator... Mark my words: THIS IS GOING TO BE THE TOP (just because I liquidated)
    19 Apr 2013, 09:48 AM Reply Like
  • But also my numbers agree with Sir Monaco's, however, I thought yesterday's build would be bigger so something is wrong with my figures, on the other hand, the current price hype means coal to gas switching is going to be even more of a nobrainer for power generation. So I agree again with Sir Monaco
    19 Apr 2013, 09:52 AM Reply Like
  • I know, right. I am not sure if I am just miscalculating or am not aware of something critical. I *think* we would be having dramatically above average injections already if it wasn't for the continuing wave of cold air Canada keeps sending first to the NE, then the NW, now the Midwest.

     

    The last data I saw showed electricity generation usage down 16% YOY (if I remember correctly) This usage was one of the huge reasons last years inventories didn't go into the winter extremely high, along with a reduction in drilling activity in some areas due to the sub 2 dollar prices). It showed industrial usage down but didn't have a YOY figure. Commercial/residential usage (aka heating) was up dramatically (like >20%). Total gas usage YOY was up maybe 4-5%.

     

    When I look at these numbers, I see falling demand once you factor out the latest cold weather, wells freezing, and someone had mentioned multiple nuclear reactors being offline temporarily. Of coarse that might never change. We might have a really hot summer and more peak demand power plants may need to fill the slack. Industrial usage may go up. However, if temperatures become more normal, I don't see how injections wont go, and stay above the 5 year average.

     

    But what do I know. I do know that in my area (Northern WV/Southern PA), they are drilling like crazy, and don't have enough rigs to fill the demand. I know that drilling, at least in the area, is very profitable at these prices, and there will probably be growth in drilling as soon as it is possible. However, I don't know the situation in the rest of the United States as well.

     

    There is a huge amount of speculative money flowing into natural gas, which is usually a bad sign. A somewhat efficient market shouldn't allow the vast majority of participants to make an easy profit. If it was so obvious the price was to low, it would have already gone up before the majority of participants "got in". Producers are hedging their sales a year or so out into the future, which suggests they don't think higher prices are likely enough to risk getting a lower price. It will be interesting to see what happens within the next 2 months.
    19 Apr 2013, 07:17 PM Reply Like
  • Sir Monaco, Zeits just put out an article re Nat Gas outlook. Seems it's another article that doesn't agree with your analysis and outlook for NG to drop like a rock soon? Any comments Sir???
    19 Apr 2013, 05:24 PM Reply Like
  • If I remember correctly, that article also didn't expect much increase in price either, unless there was a weather related demand shock this summer or some other unexpected development.

     

    So why would someone other than natural gas consumers buy natural gas today? Why would speculative money stay in natural gas if it isn't going to go up much. They wouldn't make any money, and could loose it due to opportunity cost (crude oil is more likely to go up than natural gas), to contango and other types of decay associated with commodities and leverage.

     

    If speculators start moving their money to better opportunities, even if $4.50 is a good price for natural gas we could see a sell off. There is a ton of money in long positions at the moment, and it's not going to want to sit there if the price stabilizes. The price has to continue to go up to keep that money in. If we don't get increasing prices for a long period of time, the consensus changes from "it's guaranteed to make tons of money" to "probably not going up much more." If the sell out happens to quickly, we could easily see a self reinforcing cycle where a lot of people try to get out before it falls. Sure, some people will buy to offset some of those sales if they think they know the correct price is higher. I don't think the majority of the money is "smart", but is just following momentum and hype.

     

    I am not quite as bearish as Sir Monaco, but I think when the market starts to think the price has stabilized, we will see a sell off. How far it will take us down, no idea. I would guess back to the 200 day moving average. If injections start coming in above average and we are above average inventory or trending that direction at the same time as this sell off is occurring, then it may fall even further. If the above average injections don't come, then we probably start to bounce back up at least part of the way back to where we are today (because there is once again a reason for speculators to buy, the price is thought to be going up or going down by enough to make the risk and locking up their capital worth taking in their mind).
    20 Apr 2013, 06:17 AM Reply Like
  • Excellent post Jonathan!
    20 Apr 2013, 01:18 PM Reply Like
  • Major turnaround in the 6-10 & 8-14 day temperature forecasts.
    Went from Thursday and Friday's below normal cold for the next 6-14 days in the east and midwest to today's above normal warm. There just isn't any good reason to buy NG at these inflated prices.
    21 Apr 2013, 03:45 PM Reply Like
  • yeah I saw that...

     

    http://1.usa.gov/11tcKjc
    21 Apr 2013, 07:50 PM Reply Like
  • I am excited to see capitulation. Citi's Tim Evan wrote just 1 week ago that nat gas might hit $3 again. Baml is also saying a retest to $3 as shown in the article here...http://bit.ly/10sWSQU
    22 Apr 2013, 02:20 AM Reply Like
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