Natural gas has traded lower the last 6 sessions and is currently trading off the lowest levels in 13’. Looking back 16 months one can identify on the chart below that a gap was filled from 4/23 this week. Stochastics are showing the most oversold conditions in 5 weeks when futures managed to rally 30 cents and the last time the down sloping trend line (red line)was challenged in late July. Past performance is not indicative of futures results. The first confirmation that an interim bottom has been established is a trade over the 8 day MA (orange line) a level that has served as resistance since 7/26. Just as the gap was filled from last April I expect the overhead gap from 7/26 approximately 25 cents above current trade to be filled in the coming weeks.
Today much like every Thursday we get an AGA inventory report. The general expectations are to show an injection or around 75 BCF, which is quite a bit larger than 1 year ago an increase of 25 BCF. Being futures are extremely oversold and the sentiment is so bearish and expectations for a larger storage injection I believe there is a potential for an upside surprise.
Now for the trade…
Natural Gas Futures, chart of August 8, 2013
Two Natural Gas trade suggestions:
- Long November futures while simultaneously selling $3.50 calls as a hedge 1:1.
- Back ratio spreads in either October or November selling closer strikes and buying multiple (3 or 4) further out of the money strikes.
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As always, I’m here to discuss specifics and give guidance. Shoot me an email…Give me a call… you can reach me at: mbradbard@rcmam.com or 954-929-9997
Risk Disclaimer: This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities and/ or financial products herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed to be accurate. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.
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