Natural Gas: Another Chance to Profit As This Commodity Takes a Tumble
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
While history has shown us that there shouldn’t be much correlation between the stock and commodity markets, the current inter-connectedness between the two at the moment is still very evident.
We’re still seeing large, intra-day and intra-week price swings, most of it coming on the heels of stock market moves.
So much for history.
It makes more sense to focus on the present - and that means taking what the market gives us. With commodities, that’s a hearty dose of volatility…
Another Chance To Go Long On Natural Gas
The natural gas market giveth and then taketh away.
We’ve been bullish on the natural gas market since the price hit a long-term support level near the $4.500 per MMbtu mark a few months back. Since making a new low price of $3.740 (based on the May 2009 futures contract) on March 18, the futures blasted higher by 1,000 ticks and reached a high of $4.750.
But with a surprise Energy Information Administration report last Thursday, which showed a much larger buildup of underground natural gas supplies, the market has sunk right back to its lows of $3.750 per MMBtu.
Although we’re a little disappointed with the current state of this market, we continue to like natural gas for the very long-term - particularly as hurricane season creeps closer and the risk of damage to natural gas operations in the Gulf heightens.
If you’re thinking of initiating bullish trades, you can do it through the natural gas futures options market on the NYMEX, or on the market’s main ETF - the United States Natural Gas Fund (NYSE: UNG).
A Wide Range For Crude Ahead
Crude oil continues to swing in large ranges.
The May futures contract just hit a near-term high of $54.66 per barrel - a significant jump from its low of just under $40 last month. But with a bout of profit-taking in the mix, the contract’s 20-day moving average has moved to support near $49 per barrel.
Depending on the mood of the market, we could see oil hold at this level and head higher again. If it doesn’t hold, though, we could see a drop back down to $40 very quickly.
Regardless, our near-term trading range for oil continues to fall between $30 and $60 a barrel.
Metals Pause For Breath… But Get Ready For The Next Move Higher
With gold and silver having recently tagged highs ($1,000 per ounce for gold and $14.50 per ounce for silver), both have taken a bit of a breather and retraced some of their gains.
This kind of profit-taking is perfectly normal - and is actually a good thing, as it gives the markets a chance to consolidate in preparation for the next leg higher. We still believe this will happen.
For gold: We don’t see the front-month futures contract (June) trading much below $870 per ounce after the current pullback is over.
For silver: We shouldn’t see a price much below $12 an ounce for the May contract.
With the stock markets still unsteady, many investors are sticking with metals as part of a diversified portfolio.
Aside from using limited-risk option strategies to play gold and silver futures options on the COMEX market, you can buy outright shares of the ETFs that track the price performance of gold and silver - the SPDR Gold Trust (NYSE: GLD) and iShares Silver Trust (NYSE: SLV) respectively. You can also play options on these ETFs.
Could Winds Whip OJ Into A Bullish Frenzy?
Keep an eye on the orange juice market. It’s definitely bounced off its yearly lows near $.65 per pound and has trended higher to its current price of $.77 per pound.
Orange juice is a market that heats up towards the late spring/early summer - and is then on full “hurricane watch” from June until November. We’ll continue to post the monthly chart of orange juice as a reference point of where it’s been before - and could potentially go again.
That’s all for this edition. Catch you next time.
Lee Lowell
Editor - Triple-Zone Profit Trader
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great pick on natural gas. it’s fallen 30% since then.