While this hasn't happened at an index level yet, there have been pockets of strength, like uranium and natural gas.
We recently outlined a bullish trade idea for natural gas futures, which paid out in spades.
The commodity ended up ripping over 35% in September, historically the most bullish month of the year.
Let's talk about what the widowmaker is doing today.
Natural gas futures have a strong tendency to go down during the winter months of the year:
But when it ignores this seasonal tendency, we pay attention. When a market shrugs off a bearish seasonal pattern, news, etc., we (investors and traders) must leave our biases at the door and acknowledge the underlying relative strength.
We don't want to fight this relative strength. We want to lean into it.
Good things tend to happen to natural gas futures when the commercial hedgers are bearish:
As you can see, we've highlighted the times on the chart when the commercial hedgers have been bearish (red) and bullish (green).
We want to take the opposite side of the commercials and buy when they sell.
So, if we have a bullish bias, where do we buy?
Here's how we're playing it:
The market has repeatedly proven that supply is greater than demand at this level.
However, a breakout would signal a conclusion to this consolidation phase, and we want to be long in anticipation of a fresh leg higher.
We're long natural gas futures above 3.60, with a target of 5.30 over the coming 2-4 months.
Conversely, we don't want to own natural gas if it slips back into the prior range.
