From the desk of Tom Bruni @BruniCharting
Precious Metals are getting all of the Commodity attention these days, but the truth is there is a lot more opportunity in the space than just Metals.
In this post, I want to outline why we think Natural Gas is in a new bull market and how we're taking advantage of it.
Here's the weekly chart of Natural Gas we've been using as a roadmap for the last few years. In March, prices approached long-term support near 1.60 and volatility began to pick up, signaling to us that a trend change was potentially underway. And on top of that, momentum failed to get oversold which suggested sellers were getting exhausted.
Click on chart to enlarge view.
After an initial bounce in the second quarter, prices briefly undercut support at 1.60 before reversing sharply. Since then they've stabilized above support and have accelerated to the upside.
Our view is that if prices are above this support level, then this long-term bottom is intact and we can look for prices to head back up towards the top of their multi-year range near 4.50.
And on a relative basis, Natural Gas looks to be bottoming at a similar level relative to the Equally-Weighted Commodities Index. Notice how momentum also stayed out of oversold territory, another sign that buyers are potentially taking control.
Combining what we're seeing in the price and momentum characteristics of Natural Gas on an absolute and relative basis, it's clear to us that this year's lows were a major inflection point.
The path of least resistance is now higher.
If you're not trading the futures or Natural Gas ETF $UNG and prefer a way to play it through Equities, here's how we're approaching that. Rather than own the Natural Gas Stock ETF $FCG, we'd rather be looking within the ETF's components for the most skewed reward/risk opportunities.
Names like Cabot Oil & Gas $COG look appealing. Here's a weekly chart of the stock showing major support at 14.00 and resistance near 29.50. Notice how prices briefly undercut support as momentum diverged positively, and then quickly reversed. That signaled to us that buyers had re-taken control and today they remain so.
As long as prices are above 14, we can be buying weakness in the stock and looking for a move back up towards the top of the range at 29.50 (and eventually all-time highs above 40).
And here's the stock relative to the rest of the Natural Gas Stock ETF $FCG. It's pulled back significantly from its all-time highs, however, it remains in a clear long-term uptrend so any weakness should be viewed as a buying opportunity.
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