Where is Natural Gas going? Zero?Hello,
2023 has been one boring year. I have not posted in a while. Trading is boring but 2023 to me was up there in the pantheon of useless years.
And 2022 was the year of disappointment, of trends that start and then go "nevermind".
It has gotten better, the S&P500 is in a bull trend at all time high, Bitcoin is going up in a straight line, it's not at ATH but it's not far and I think it will go test it then stop there, Gold looks like it's ready to go.
Things are looking much better now. It does not mean it is time to become a gambler but it is time to actually trade, to take some risks.
And this is what I have done with natural gaz, for several reasons I thought it could keep going down.
I yolo'd, I went short with a guaranteed stop over the weekend because there was huge contango and I thought it might gap (small limited risk, huge reward). Well it did gap and then it kept going and now I do not know what to do.
So price action is very violent and we have never seen with with Natural Gaz, but it sure reminds me of Oil in 2020. Something "big" may be happening. I consider anything is possible, we might even be at the bottom.
This cannot possibly be part of an existing strategy. So let's try to make a decent analysis.
A few questions should be answered :
- What is the expected volatility and can the price go to zero?
- Why is the price falling? What do analysts say?
- What are everyone's positions? What are retail traders (the gamblers) doing?
- Do we have any kind of TA we can do?
And then I'll try to come up with possible targets and a stop trailing strategy.
1/ Expected volatility and null or negative price.
I have not seen an official statement from the CME like there was about Oil 4 years ago. But we know there is no min price.
And according to my own strategy that is based on decades of data and has consistently worked for me. So I start with preconceptions already but I'll try to make a "new" and objective analysis. According to my strat the target is below 0.
When price is extended like this it tends to go further. It sometimes just keeps getting worse, when you think it has hit bottom and cannot possibly organically go lower, the irrational retail traders see $1 barrels, 10c stocks, all time low 10c Gas with blew up pipelines and Russia announcing it will limit production or making some threat and so the gamblers start going nuts fantacizing about becoming millionaires. This is when it goes below zero.
2/ Why is the price falling and what do analysts say?
First I cannot find an official source showing how many positions are getting liquidated, sadly, but it is safe to assume that this unprecedented move is wiping out more people than usual.
There are articles and videos - including from the CME - on the subject.
Hey the CME video on Natural Gas got 259 views this is 5 times more than their other videos at the same time (Oil, S&P500, Gold) so some people are paying attention.
There are several things (other than traders getting wiped out) that explain the low price for gas.
First you have an early spring, I'm already seeing some flowers in Europe, and US temperatures were and remain higher than average, so demande is low. This weekend US temperatures have dropped back a little so price could retrace, but that was very temporary and temperature will go back up soon.
Second, and this is both a consequence of the first and a cause of the price, production remained high and stores are full if my sources are correct.
Third electricity and energy prices to the western public recently have gotten ridiculously high. So, and this is my conclusion, if people are forced to use less electricity (it's to save the planet they say) the prices will become far lower than where they historically were.
Fourth economic growth in Europe and even the US is a thing of the past.
Something I have not heard about but we should watch out for is nuclear energy. A big announcement will move the price of other energy sources.
3/ What are everyone's positions? What are retail traders (the gamblers) doing?
So first of all hedgers are rarely short, gas producers (Russia) just seem to not care. And because of this speculators need to be short. Small speculators are perma-bulls.
This is pretty straight-forward. In the past when the price gets cheap hedgers buy in large numbers, you can see it on the commitment of traders chart. Here the positions are not extreme.
I do not think we can draw any conclusions from this information.
The general public / the bulk of retail traders does not appear to be aware of gas price action. Yet?
4/ Do we have any kind of TA we can do?
We can certainly go lower. I am convinced there is a seriously likelyhood of the price getting really low. I might add on a retrace.
The worse it gets, the even worse it will become? Like a chain reaction.
How far up can we go before going lower?
I'll just go trailing my stop to zero using Elliott Wave Theory and Fib, because that is all I have. Would have worked with Oil too.
I cannot use lower highs there are none it is falling in a straight line. I cannot use my rules the calculations do not work for a target more than 100% away from entry.
So fib is the best I have (on top of support/resistance). I do not have some precise magical technic sorry. A single trade is so random, good thing we get to take more than just one in our lifetime.
So to sum up : Natural Gas is getting cheaper, there are real reasons for it to. This position makes sense, and the momentum is super strong. I like it, I'm going to keep it. If it reverses more than I'd expect I'll stop liking it and close, if it gets to zero I'll close it too.
Good enough for me. No one has a crystal ball, and if there was certainty they would not need us to take speculative positions.
