Natural Gas Languishing

It's been a long time since I've written a post on the markets. Mostly this is because I had very little of worth to say in these tumultuous times, although I have been trying my luck. When everything goes up and down in unison like a well-choreographed chorus line in response to every news headline, there just isn't too much to say, except perhaps to stand aside.

There is one chart that came to my attention: that of the natural gas futures ETF. If we look at the following technical chart we can see that it has been in a straight-line (logarithmic) decline for the past year. The price is almost perfectly trapped between the 50-day EMA and the lower Bollinger Band.

Volume over this period is noticably higher than the previous 12 months. However, in the volume crescendo around Labour Day last year there was no reversal of the trend. Now as we appear to be approaching a similar peak in volume will the result be different?

I am betting that the trend will break, by investing in a mid-sized Canadian producer. If I'm right, there is an opportunity for some out-sized returns. If I'm wrong, I believe the downside is only moderately risky since the company appears to be doing a decent job matching capital expense and debt servicing to market rates for the raw product.

The US natural gas storage story is somewhat problematic. There is clearly a loss of long-term equilibrium between production and consumption, so there is still some potential for an additional price decline. I believe that as the broader market stabilizes and more producers shutter wells in response to the low prices there could be a sharp upswing in the price of natural gas.

Hopefully I'm right, but I do not claim any special insight into this commodity market. Investment is never without risk.