The 29-Cent Genius Trade

The more I stare at the chart of natural gas, the more bullish it looks to me.

Granted, it has looked bullish to me for the past two months (you can read the previous essays here and here). And, natural gas has rallied from $2.49 to $2.78 since we looked at it back in June.

But, let’s face it, nobody is going to write into Market Minute feedback and talk about what a genius I am for helping them make 29 cents on the “widow maker” trade.

In fact, based on the feedback from my prior natural gas essays, folks are more inclined to question my intelligence.

Like this gentleman, who responded to last month’s essay…

“You clearly have no understanding of economics, or the laws of supply and demand when it comes to commodities. We have a glut of natural gas in the United States. The price will stay low for a very long time. Not everything can be explained by your charts.”

Now, I don’t want to appear argumentative. But, I do actually have a degree in economics.

Though, it’s from a California university. So, grain of salt on that one.

And, while it’s true that we do have a record high inventory of natural gas, as my friend – and commodity expert – Rick Rule is fond of saying, the cure for low prices for a commodity is low prices.

The gentleman is right, however, that not everything can be explained by the charts.

But, outside of a crystal ball, a chart is arguably the best illustration of the psychology affecting the current price of a stock or asset.

The problem, though, is that – like art – a chart is subject to interpretation. Two people can look at the same chart. And one can see it as bearish while the other has a bullish interpretation.

But, if you look at the following chart of natural gas and see it as bearish, then you’re just nuts.

Take a look…

I’ve drawn the setup a bit differently than we showed it last month. But, it remains bullish.

After bottoming at $2 in early April, the price of natural gas has been grinding higher – making a series of higher lows on the chart and hitting resistance multiple times near the $2.80 level.

This action has formed an ascending triangle pattern – which usually resolves with a breakout to the upside.

All of the various moving average lines are coiled together, building energy to fuel the next big move. And, the moving averages are in a bullish configuration – with the 9-day EMA above the 20-day EMA, and the 20-day EMA above the 50-day MA.

So, as long as natural gas doesn’t fall below the August low near $2.45, the odds favor a bullish move.

Natural gas has been in this low-level trading range for so long, that there’s plenty of pent-up energy to fuel a move up towards $5. And, that move could happen just as fast as the decline from mid-December to mid-February.

In other words, if natural gas can make a decisive breakout above $2.80, then there’s a good chance it could run as high as $5 over the next two months.

I could be wrong, of course. A breakdown below $2.45 changes the picture from bullish to bearish.

But, in its current pattern, the “widow maker” looks quite bullish to me.

Best regards & good trading,

Jeff Clark

Do you share a similar sentiment regarding natural gas? Feel free to write in to [email protected].