Are Natural Gas ETFs A Buy?

| November 16, 2015

Time To Buy Natural Gas ETFs?

The three-month downturn in natural gas has been quite remarkable.  Fact is, the gaseous commodity has plunged just over 20% since mid-August.

Take a look…

Natural Gas ETF, a chart of natural gas

Clearly, natural gas bears have ruled the roost the past few months.  But what’s really amazing is that this downturn has come in what’s typically a strong time of year for the commodity.

As I mentioned in early September, a 20-year seasonality study reveals natural gas tends to rally this time of year as investors price in the forthcoming winter heating season.

But there’s a problem…

Old Man Winter is nowhere to be found.

Key heating regions in the Eastern and Central US have been enveloped in above average temperatures the past month.  And judging by the current National Ocean and Atmospheric Administration’s (NOAA) 8-14 day outlook, there’s more unusual warmth to come…

Natural Gas ETF, NOAA outlook

As you can see, everything east of the Great Plains will likely see at least another 8-14 days of above average temperatures.  Of course, warmer weather keeps heating demand subdued, which in turn keeps natural gas demand lower.

Weak demand, mixed with high inventories, has natural gas bulls grazing in the back pasture. 

Speaking of inventories…

Last week’s EIA inventory report revealed there was 3,978 bcf of working natural gas in storage for the week of November 6.  That’s 373 bcf (10.3%) higher than last year at this time and 173 bcf (4.5%) above the 5-year average.

Clearly, there’s no shortage of natural gas in storage right now.

As a result, even if the upcoming winter is harsh (like the last two), the cold alone won’t likely be enough to have an extended bullish impact on prices.

However, there’s a relatively simple factor that may bring bulls back into the picture soon… 

Natural Gas ETF, long term chart

With the commodity trading a stone’s throw away from the 2012 lows at $2 mmBtu, bears are running out of room for additional downside profits.  After all, a break below long-term technical support (green line) without a short covering rally or two is highly unlikely.

Bottom line…

Even though fundamentals are clearly bearish for natural gas at the moment, the long term oversold nature of this market may give quick traders an opportunity for profits in coming weeks.

One of the best ways to capture outsized gains is through leveraged natural gas ETFs.

But let’s be clear…

Unless natural gas production slows meaningfully this winter (which is a very distinct possibility), any rally will likely be short-term in nature.  As a result, only quick traders with excellent discipline should focus on the leveraged ETFs mentioned in the link above.   

Until Next Time,

Justin Bennett
Commodity Trading Research

BIO:  Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com.  With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them.  Sign up for our free reports and commodity newsletter at http://commoditytradingresearch.com/free-sign-up.

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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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