Natural Gas - Up or Down?

Trend – The big question for this energy component is up or down. Looking at the chart, technically the uptrend line was broken last week. The sell off yesterday in crude pushed the price of natural gas lower again. The current price is juggling between $9-10 with many analyst believing the price should be closer to $11. The outlook is for this to be an alternative source of energy. While it will not replace fossil fuels it is seen as a bridge to get us to alternative sources of energy and easing some pressure on crude prices. Supply is plentiful at this point and new finds continue to add to the reserves. With such a bright future why the selling? Emotions or price.

Outlook – (AMEX: UNG) the ETF for natural gas has pulled back more than 15% since hitting a high on July 1st. Much of this is due to the volatility in crude oil resulting in guilt by association. The question of demand is also a consideration. That will be answered more over time as natural gas is accepted as an affordable alternative to oil . Winter demand is expected to rise as the price of heating oil has moved higher. Looking at the chart there is support near $50 which was the breakout point off the March low.  This is a key decision point short term, but the future is still bright for natural gas.

Strategy – Use this pullback as an opportunity. The next decision point is at the $50 mark. If we hold support and bounce this would be an opportunity to add to existing positions or add a position. If we break this level $45 would be the next support point and the approach would be much the same. I would be patient in developing a position in the ETF letting the price come to you versus chasing your entry. The target would then become the previous higher of $62.50 and setting a stop would be determined by the entry point and disciplined applied. I like the long term outlook for natural gas and see the recent selling as an opportunity