Quite simply, a bear market has ended, and a bull market has begun in the Natural Gas market. This has been quite some time in the making, for the relationship between natural gas and crude oil has been skewed for a number of years in favor of natural gas. Now, we feel confident in the fact that the trend has changed in favor of natural gas on both an absolute and relative basis versus crude oil as well as the S&P 500.
Perusing the weekly Natural Gas chart, one can easily see that the simple downward sloping trend-line was violated after several touches. This simple, but elegant breakout suggests prices are headed higher over the next several years, with the 155-week moving average at $4.00 being the first target, with the $5.00 to $6.00 zone being the intermediate-term target. And, over time - given the relative valuation versus crude oil - we could very well see the highs challenged.
With that said, "natty" is a very volatile futures contract to trade, but there are various ETFs available to take advantage of this price rise. However, we'll urge some caution, for the "roll" between months tends to be unfavorable. One only remember trading the Natural Gas ETF (UNG) over the past several years to see the "roll" work against you. At some point, and we think that point is soon - it shall work in one's favor.
In any case, getting the "natty" trend right is paramount; with natural gas stocks such as Devon Energy (DVN) being a good proxy. Keep it simple: buy corrections against the main trend...and enjoy the ride.
Good luck and good trading,
Richard
