If seasonal trends hold up, the price of natural gas is headed sharply higher over the next few weeks.
We turned bullish on natural gas two months ago. We noted the seasonal tendency for the “widow maker” – as traders refer to natural gas because of its difficulty to trade – to bottom in August and then rally into December. So, despite record inventories, and despite the outlook for a warmer than normal winter, we suggested buying natural gas as it traded near the lowest level of the year.
Natural gas is 10% higher today than it was back in August. And, it looks to me like it has a lot further to run.
Look at this chart…
Natural gas has been rallying for the past several weeks – making a series of higher highs and higher lows. For the past few days, though, the widow maker has been falling. It has drifted back down towards the support of its 50-day moving average, and the rising support line connecting the higher lows.
This action is similar to how natural gas behaved this time last year. If the pattern holds, then natural gas should bottom soon. And, the next rally could be strong enough to break through the resistance line at about $3.35.
If that happens, then the next resistance near $4.40 comes into play. That would represent a nearly 50% gain from the current price, and better than a 70% rally from when we first turned bullish in August.
Aggressive traders can consider buying shares of United States Natural Gas Fund (UNG) in order to take advantage of this setup.
And, if you’re looking for a leveraged play, the ProShares Ultra Bloomberg Natural Gas Fund (BOIL) is a double-levered ETF.
In other words, BOIL is structured to return twice the daily return of natural gas. So, if natural gas gains 5%, BOIL – in theory – would gain 10%.
Either way, I expect both UNG and BOIL will be trading higher a few weeks from now than where they are today.
Best regards and good trading,
Jeff Clark
Editor, Market Minute