Seeing the Spin on Natural Gas

From the Desk of Ian Culley @IanCulley

I want to share with you a trade idea I wouldn’t have considered a year ago.

I balked at first. This trade’s simply not in my wheelhouse. But I’ve learned so much here at All Star Charts over the past three years.

And "to be open-minded" has been one of the most impactful lessons. 

Now, this setup has my full attention. Risk is well-defined, and the upside potential is heavily skewed in our favor.

I can see the spin on the pitch.

I’m talking about natural gas…

Before I lay out the levels, let’s step back and look at the big picture.

Natural gas stocks, represented by the Natural Gas ETF $FCG, haven't experienced the same extreme sell-off as natural gas futures $NGF:

In fact, they’re hanging tough much like other energy stocks. We’ve seen this before with crude oil and the Energy Sector ETF $XLE in recent quarters. 

So far, crude oil is carving out a base while XLE continues its upward trajectory. That doesn’t mean natural gas futures and FCG will do the same, of course.

Rather, it signifies resilience among energy-related assets – a resilience we can extend to commodities in general.

Orange juice is ripping, sugar is breaking out, and cattle futures are marching higher. 

Commodities are working.

When you consider the recent decline in natural gas marked the largest negative rolling four-week rate of change in the history of the contract, perhaps it’s finally due for a bounce:

I like buying strength, not weakness. At the same time, I know price doesn’t move in a straight line.

Natural gas looks primed for a mean-reversion bounce as it stopped falling at a shelf of former lows. These 2021 lows mark a reasonable level to define our risk. 

Check out the daily chart of natural gas futures:

The 2.34 level represents my line in the sand. I want nothing to do with natural gas if it’s printing fresh lows. As long as it’s above that level, I like it long toward 5.25.

That’s a big move, but we’re talking about the “widow maker” here!

You can always trade the United States Natural Gas Fund $UNG if you don’t want to venture into the futures market. JC outlined the setup last week.

Bottom line: We’re bullish commodities. We’re bullish energy. And natural gas provides a clear level to define our risk.

There’s no harm if you want to let this one go. The market will always throw us another pitch.

For me, natty gas is a bit outside. But there’s a chance I could drive it the opposite way.

And if I’m quick and agile, I might just turn this trade into a triple.

Are you taking a swing at natural gas down here?

Let us know what you think. We love hearing from you.

Thanks for reading!

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