It’s Not The Time To Be Bullish Natural Gas
Jay Kaeppel | Jun 17, 2016 04:38PM ET
Since its early March low, natural gas -- using ETF UNG as a proxy -- has rallied +37% to a June high of $7.95 a share. Not bad. And as the advance has continued, I read more and more bullish prognostications for higher prices still. Human nature seems to dictate that the further an advance extends, the more bullish people become. Which leads us directly to:
Jay’s Trading Maxim #306: Human nature can be a detriment to trading success and should be avoided as much as humanly possible.
Figure 1 displays the current status for July natural gas futures. Note the obvious overhead resistance point at $2.63-$2.64.
Courtesy ProfitSource by HUBB
Seasonal Downtime
In addition, we have entered a seasonally unfavorable period for natural gas at the close on 6/15 (June Trading Day #11). This unfavorable period extends through 7/21/16 (July Trading Day #14). Figure 2 displays an equity curve generated by holding a long position of one natural gas futures contract during the June TDM #11 through July TDM#14 since 1990.
Long 1 natural gas futures contract June TDM #11 through July TDM #14; 4/4/1990-Present
By no means a bearish “sure thing,” but not a very pretty picture in any event.
UNG's performance during this “unfavorable” time frame appears in Figure 3.
UNG performance during “seasonally unfavorable” June/July time period
Summary
So does any of this guarantee that natural gas is sure to decline in price between now and late July? Not at all. Should you sell short as much natural gas as possible? Not necessarily.
But as the title implies, while natural could certainly break out above recent resistance and surprise to the upside (see 2012 results in Figure 3), I can think of other things to do with my money for now.
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