Earlier this year, everyone was talking about lumber.
The price was surging and demand far outpaced supply. And, with the typical spring and summertime pickup in construction on the way, most folks assumed the price of lumber would continue higher.
But in the commodity market, even more so than in the stock market, prices discount the future. The price of lumber doubled in the first four months of 2021…
That action was discounting the increased demand and reduced supply that goes along with the typical construction season…
The price of lumber had gone parabolic – but parabolic moves are unsustainable.
So, when the price began to discount the slower building season of fall and winter, lumber fell hard. It gave up all the gains from earlier this year and then some.
Look at this chart of lumber…
When a parabolic move ends, the resulting decline often erases the entire move higher. As you can see from the chart, that’s exactly what happened with the price of lumber.
And, it’s probably exactly what’s going to happen with the price of natural gas.
Think about it… natural gas has become the new lumber.
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The price is surging and demand is far outpacing supply. And, with winter on its way, just about everybody expects the price of natural gas to continue higher.
But, as I mentioned last month…
Natural gas prices often run higher just before the weather turns cold. Traders anticipate the increased demand for natural gas. Then, they buy natural gas futures ahead of time. And, their actions push up the price.
By the time the cold weather finally rolls around, the price of natural gas has already discounted the increased demand. That’s when the price peaks, and traders start to sell in anticipation of warmer springtime temperatures leading to less demand for natural gas.
The chart below of natural gas has gone parabolic – like the chart of lumber did going into its peak usage season.
Just take a look…
This parabolic move is just now starting to break down. And, there’s plenty of downside ahead.
So, if you’re thinking about buying natural gas now – in anticipation of higher prices going into winter – think again.
That move has already been discounted. The market right now is in the process of discounting lower demand for natural gas as we head into springtime.
That means natural gas will likely be lower in the weeks and months ahead rather than higher.
Best regards and good trading,
Jeff Clark
Reader Mailbag
With inflation affecting the markets, do you foresee any other commodities that could be in a parabolic move soon?
Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com.