The Widow-Maker Trade Is at It Again

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The widow-maker is at it again.

Commodity traders refer to natural gas as the widow-maker because of how difficult it is to trade. The price of natural gas is erratic. It doesn’t seem to conform to any of the standard rules of technical analysis. It often trades irrationally – rallying when the fundamentals argue for a decline, and vice versa.

As a result, most folks lose money trying to trade natural gas. Hence… the widow-maker.

And yet, some of us just can’t help ourselves. We saunter into the trading pits determined to solve the natural gas puzzle. Because… when you get it right, the payoff can be quite large.

The last time we looked at natural gas was 10 months ago. The widow-maker was trading at about $3. We were entering the seasonally strong month of August, with natural gas in an oversold condition. And, it looked like natural gas was gearing up for a “snap-back” rally.

Shortly afterwards, as if to prove its reputation for erratic behavior, the price of natural gas declined. It ignored its seasonal strength, got even more oversold, and pressured many bullish traders out of their positions.

That’s when the price finally turned. In three months – from late-August until late-November – natural gas rallied over 80%. Anyone who stuck with the widow-maker trade did quite well.

That brings us to today…

Natural gas looks to me like it’s setting up for another rally. Take a look…

The price of natural gas bottomed in April. It has been quietly moving higher since then.

I write “quietly” because it seems as though no one has noticed. The price rallied by more than 20%. But, none of the financial television talking heads have said anything about it… yet.

For the past three weeks, natural gas has been consolidating in a relatively tight trading range between $3.00 and $3.30 – building up energy to fuel its next big move. If it can get above the next resistance level at about $3.50, then natural gas is likely headed back to its February high at $4.40.

Granted, it’s not going to be a straight shot higher. This is the widow-maker, after all. But, after being stuck in a trading range for a few weeks, there is a lot of energy built up in this chart.

And, it sure looks to me like that energy is going to fuel a rally.

Best regards and good trading,

Jeff Clark
Editor, Market Minute