We’re buying Natural Gas

March 26, 20246 Comments

Over the weekend, I posted a blog outlining why I’m bullish  on oil and gas. I’ve also posted a video on my outlook for vastly increasing electrical power usage over the coming 4-5 years. I outlined that oil was the more conservative energy bet, and gas was the better aggressive traders bet. Since writing that blog, I’ve done some additional research on the Nat Gas trade that has increased my enthusiasm of the potential for upside. In fact, I’m putting my money where my mouth is – albeit still understanding that it is an aggressive trade. ValueTrend just bought our first leg of a Nat Gas in our Aggressive Strategy. That’s what today’s blog is all about.

Fundamental review

Three quotes for you:

The world adds a new data center every three days – explosive energy demand is coming. There is a colossal hole in the road on the way to the green meadow. Oil, Gas and Nuclear will fill that hole. BearTraps

“We’re not going to build 100 gigawatts of new renewables in a few years. You are kind of stuck Bill Gates

“The five-year projection of U.S. electricity demand growth has doubled from a year ago” Grid Strategies.

Tech AI & cloud data centers are not going to wait five to 10 years to get this power infrastructure built. For example, Georgia’s Southern Company, a major utility, now expects 6,600 megawatts of demand growth through the winter of 2030, 17 times greater than the previous forecast!!!

As Bill Gates says, we’re not going to build enough renewable power to meet this need. The trade? Natural gas!

Technicals

Here’s a chart of the natural gas spot price, seen in my weekend’s blog. Note that gas is at long termed support:

One of the best Canadian Natural Gas ETF’s is the HUN ETF . Disclosure: we recently took an initial leg in this position in our Aggressive Strategy model. This ETF actually tracks gas better than the US listed UNG ETF. The key difference being that UNG rolls contracts monthly, while the HUG ETF rolls them yearly (November).

The spot price gas (top chart) shows we are at support. Discrepancies with ETF’s vs spot prices change the chart somewhat, with the HUG Chart showing it is NOT at its long termed bottom.  But the ETF DOES suggest a clear downside with well defined stop. Note my lines on the chart, including the potential upsides.

Note: Because the actual gas chart (top) shows we are already AT its lowest technical support, this possibly suggests that the risk on buying HUN is less than its chart implies.

Whatever the case:  On EITHER chart, both are basing. That can change, support could crack.  This is not a trade for the timid. But the technicals are constructive for those willing to accept the risk. Note the positive divergence on MACD on the HUN chart.

Trump/ Biden factor

The January decision from the Biden Administration to pause all pending and future LNG export permits hit the price of natural gas hard. Front-month futures prices have slumped nearly -40% since the announcement. Look at the Nat Gas chart at the top of this blog.  You’ll notice this negative price move since both the lead-in rumors  late 2023, and actual announcement in January.

To us, there is a clear binary decision tree — a Biden victory will likely do little to change the status quo, while a Trump win should see a swift end to the export permit pause. David Rosenberg

Trump is pro-gas. Biden is not, and his policies are built into prices. A Trump victory in November is perceived as bullish gas. A Biden victory is considered neutral to gas prices. We can track the positive potential for Nat Gas by tracking Predictit’s 2024 Trump election odds.

After hovering around a 40% chance of a Trump White House into mid-January, the former President’s chances took another leg higher towards 50%. The relative outperformance of the December natural gas contract began on the very same day.

Red line: Trump probability

Blue line: Nat gas futures

Conclusion

There’s enough fundamental backdrop, technical evidence, and political trending to suggest Nat Gas is a favorable high risk, high reward trade. ValueTrend has taken one leg into the trade in our Aggressive Strategy.

If you want to learn more on how to leg into positions systematically, my Online Trading Course outlines my entire trading system. Many of you have taken the course – I’m continuously told by readers that the course was the best decision they’ve ever made in helping them invest in a step by step, effective process. If you haven’t taken the course, I humbly recommend you do so.  Its purposely priced low, designed to help ordinary investors become successful investors. Here’s the link:  ValueTrend Technical Analysis

 

 

6 Comments

  • Thank You. I loaded natty ideas back in 2020. arx 2400 @ 5.75. tou @ 12.00. My reason getting in early on LNG Canada. That day is getting closer. Now I have added pey aav bir last yr. Just bought joy this week. ( the falling knife). also slowly adding into sde. Nat gas is only about 10% of my holding. PS can’t forget this one nva.

    Reply
  • Hey Keith hope it is acceptable to leave a comment from an historical post.
    As you stated you took an initial leg into HUN, so you should be experiencing my frustration. As you stated in the blog “This ETF (HUN) actually tracks gas better than the US listed UNG ETF.”
    Well from my experience HUN has not tracked Nat gas as well as UNG.
    Fortunatly for me I bought both.
    HUN is up 1% from Mar 26 to May 9
    UNG is up 12% from Mar 26 to May 9
    Nat gas (NGM24)NYMEX is up 15% from Mar 26th to May 9th
    I’m hoping to squeeze another 2.3% out of Nat gas and hence UNG and then sell UNG. I am totaly confused on HUN. I’m thinking of selling to avoid being burned.
    In theory I would expect HUN to jump maybe 11% to 14% to align with UNG or Nat gas futures. But I have little confidence it will. I almost feel like HUN is being “manipulated”. Today the volume was close to 190K, so it’s not for lack of a market.
    Question: Have you any explaination for what may be causing HUN to underperform the underlying commodity, and it’s USA counterpart? Are you also seeing little progress in your HUN position relative to Nat gas futures?
    Cheers

    Reply
    • Daddyo–we have been perplexed by this lack of movement as well – was just discussing this with Craig last week. can’t tell you why it has not kept up, might expect a catch-up trader, but I don’t have much more insight than you

      Reply

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