Natural Gas ($NATGAS) has had a flickering pilot light since February 2014. During November, 2014, Natural Gas finally got back above the 200 DMA only to lure in buyers and then starting falling. By February it had lost 40% so this is always a market that having a stop in is essential. As we head into Air Conditioning season, this can be a good time in the market for Natural Gas.
On the lower part of Chart 1, I show the correlation of Natural Gas to the US Dollar ($USD). They correlate poorly. So it would appear it does not matter which direction the $USD goes, Natural Gas can do its own thing. Natural Gas is also not correlated to the $SPX so this makes it a nice risk management tool. The Natural Gas area usually trades independent of the broader stock market.
The chart of Natural Gas over the longer term also looks inviting to me. Chart 2 is a 6 year view that I have been following for a while. Starting with the RSI, a move above 50 would be helpful. You can see these basing patterns take time to resolve comparing the length of the shaded areas. It would appear that the current base is similar in time. I really like the wide frame head/shoulders base over 6 years. That is setting up to be very bullish. The market made a low in 2009 and rallied up to the $5 area. In 2012 it made a lower low and tested 10 year extremes. The intraday price reaching back to 2001 -2002 levels. That test of the 10 year lows was important and it held. Then, in early 2014 the Natural gas price flared up to $6.20 briefly. It came all the way back down and tested the $2.50 level. I was starting to get bullish at the $2.57 low in early February 2015, but it was early. The positive divergence between the MACD and the price is very important. This sets up well.
So I am starting to watch the Natural Gas stocks here. I recently wrote about Encana on Friday. Here is the link to that article. Encana. I will focus on some of the Natural Gas companies in the upcoming weeks on my Canadian Technician blog. If you click on the link to the Encana article, you can subscribe to an email or RSS feed. I will also cover Natural Gas stocks in the webinar on Thursday, May 21. The link to all the webinars are in the What's New section of the homepage. Here is the link to my specific webinar this week. Market Roundup Live May 21, 2015. As I mentioned in the first few sentences, trading Natural Gas is volatile and risk management is very important.
Greg Schnell, CMT