Huge Profits from Natural Gas
The market had a fairly boring session yesterday. Banks continued to provide the usual leadership, which is bullish. And the financial index finished 0.49% higher in an otherwise mundane day.
Unlike the broad market natural gas had a wild session. Over the past month the price of natural gas has both risen 25% and fallen 33%.
Commodities are volatile by their very nature. Not only is the price controlled by the ebb and flow of supply and demand it's also subject to regulatory changes, natural disaster and in some instances acts of sabotage.
In the case of natural gas it fortunately came down to old school economics: supply and demand.
The U.S. continues to focus on foreign crude oil and coal for energy production. And demand for energy alternatives like natural gas hasn't increased.
The lack of demand was also accompanied by an increase in supply, which was a double whammy on the price and the main reason why natural gas prices are near lows not seen in the commodity futures market since 2002.
The increase in supply was directly tied to major gas discoveries in the Barnett Shale, Bakken Shale and Marcellus Shale formations. New techniques have also increased natural gas drilling efficiency.
With zero demand growth and increased supply, the price of natural gas has had nowhere else to go but down. But yesterday that changed.
An inventory report showed that natural gas had a bigger-than-expected January drawdown despite rising production and warm weather across America this winter. The drop in natural gas inventory followed reports last month that producers like Chesapeake Energy (NYSE: CHK) would halt drilling because prices had dropped to unprofitable levels.
Natural gas has collapsed for the past four years and has been on a gradual decline for almost a decade. Prices topped near $16 in 2005 and came back to $13.46 in 2008. But since that high, natural gas has declined 85% to $2.25 in 2012.
While I can't say for certain that the move in natural gas over the near term represents a massive bottom, I do think prices will rise over the next few months. Given my bullish stance we went long the United States Natural Gas Fund (NYSE: UNG) in my TradeMaster Daily Alert stock service this week and I will hold that ETF until such a time when I believe natural gas did not bottom. Click here for more information about my winning trading service, TradeMaster Daily Alert.
The media should be over the Facebook IPO news by now. Fortunately the focus will be on the U.S. employment figures that were released this morning. Jobs data is a sad state of affairs, but there is a recent positive trend for job growth in the U.S.
The official government statistics this morning showed that 243,000 non-farm positions were added to payroll. The staggering growth also resulted in a decline to the rate of unemployment, which at 8.3% is moderately less than 8.5% from December.
Analysts expected an 8.5% rate of unemployment after January. And non-farm payrolls were estimated to show a 121,000 addition. The beats today in unemployment were great to see in addition to the positive data over the past few weeks. Of course, today's employment data is a big positive for the economy. But will it mean the Fed's 2014 timeline will be reduced to combat inflation?
The bulls kept the indices red hot in January and February started with similar enthusiasm. As I look out more than a week, I still think the bulls remain in control through February. I also think the bulls take out the 2011 highs with the exception of the Industrials. Then I would expect a new bear trend to unfold for the remainder of the spring session.
