On Wall Street, natural gas is known as the “widow maker” trade. That’s because the price action is so erratic. It doesn’t seem to conform to any rules of fundamental or technical analysis, so trading natural gas often feels like fending off death.
In my house, the “widow maker” might become the literal definition. That’s because the last time I traded natural gas my wife threatened to kill me if I ever did it again.
Gabriela didn’t appreciate that a foul-mood demon had taken over her husband’s personality. So, once I bailed out of the trade, she encouraged me to avoid trading natural gas in the future.
Please don’t tell her. But I’m back in the widow maker trade.
I can’t help it. I’m a trader. When I see an extreme setup, I have to jump on it – even if it might kill me.
Right now, natural gas is extremely oversold – just as the seasonal patterns are turning bullish.
Natural Gas Is About to Snap Back
You see, for whatever reason, the price of natural gas tends to rally in the summer.
It did last year – when the price went from $2.20 in June to $2.90 in August. In the summer of 2022, natural gas rallied 70%. It gained nearly 100% between June and August in 2021.
So, it seems to me the odds favor a rally this year as well.
Remember though, this is the widow maker. It’s tough to trade. And so far, anyone betting on a rally in natural gas this summer is in a world of hurt.
The price is down 30% over the past month. Take a look…
Natural gas is trading more than 20% below its 50-day moving average line. That’s an extreme move. The proverbial rubber band is quite stretched below the line.
While extreme conditions can get even more extreme, it looks to me like natural gas is setting up for a “snap-back” rally.
I wasn’t interested in buying natural gas last month, despite its strong seasonal tendency to rally in the summer. The price was too far above its 50-day moving average.
The rubber band was stretched too far to the upside. It seemed unlikely that natural gas could rally much more. So, it was a poor risk/reward setup.
Free Trading Resources
Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here to check it out.
Now though, with natural gas in an oversold condition, there’s plenty of room for the widow maker to rally if the seasonal bullishness kicks into gear.
A move back up to the 50-day MA would yield a 30% gain. A rally back up to where it was trading last month would be 50%.
Meanwhile, in its current oversold condition, if natural gas keeps falling it is likely to find support near the April low at about $1.80. That would be a loss of 10%.
That looks like a good trade setup to me.
Best regards and good trading,
Jeff Clark
Editor, Market Minute