Natural Gas Is On Fire

On my radio show last week, I mentioned natural gas as a possible quick countertrend trade from the long side.  Natural gas is so beaten up since last July and on top of that oil has been rising since February.  With that said, I thought natural gas could quickly get back to its 50-day moving average looking at UNG (the way to play the commodity instead of the nat gas stocks).  Well, it’s done that and then some.  It’s been up huge lately and now I’m thinking it may be more than just a quick trade.  UNG was up almost 7% on a day when the market was beaten up pretty good on exploding volume.  That’s exactly what we’re looking for at this point, relative strength.  You can see from the chart below that the 50-day moving average has been an important place along the way.  Everytime we hit it, we simply fall further.  Today, we broke out convincingly. 

ung 5 7 09 

I know things aren’t perfect in the natural gas world for those in the business.  I’m not a gas & oil expert but I do know how to read charts and more importantly, I know what other traders are thinking.  Tons of investors are looking to take profits in areas that have moved up since March 9th and re-allocate somewhere else.  Natural gas is that place.  I also know many traders look at the oil to natural gas  ratio (price of oil to price of gas) and believe it should be around 7-8.  With oil at $55 or so, natural gas should be trading much higher than $4.

Even if the fundamentals aren’t improving in natural gas land, the charts suggest something is going on.  Volume has been improving for about a month and things exploded.  In fact, natural gas continued to move up and got stronger all day.  Monster move.

I’d love to say we can own this for the next two years but for now I can’t say that.  I can say I’m glad I bought some and glad I bought more today.

As far as the overall market, the cautious approach I’ve had lately surrounding the equity markets paid off today.  The stock market didn’t really fall off of a cliff.  But, internally it was a bad day.  It’s only one day but being patient is still my strategy.

This post published at www.karleggerss.com

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6 Responses to “Natural Gas Is On Fire”


  1. 1 Patrick May 7, 2009 at 8:34 pm

    Karl,

    It is hard for me to listen to your show now that it has been moved so I try to listen to your podcasts. I would like to listen to them on my itouch. Is there any way you can put you whole show in a podcast so I can subscribe via Itunes. Breaking it into segments works fine if I listen on my computer but it is a pain to move them to my itouch.

    Thanks,

    Patrick

  2. 3 deano May 9, 2009 at 3:28 pm

    Karl

    Actually, I have been able to download your show to my iphone, through ITunes, but all the links stopped working on 4/25. Did you guys give up the podcasting you were doing?

    I appreciate the blog, but miss the show.

    Thanks –

    Deano

  3. 5 Rosemarie May 11, 2009 at 9:14 am

    I bought UNG and today it seems to be going down a bit. At what point should it be exited?

    Bought FAZ thinking banks were going DOWN but despite all the bad news they are soaring. Should I sell out and take a loss of hold for some downturn?

    • 6 keggerss May 11, 2009 at 9:36 am

      i’d keep it for short-term as XLF (long financials) is at its 200-day mov avg and failing. if it breaks through, that’d be your sell sign.


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