Natural Gas ETF

silverharp

here is a possible long play, for seasonal reasons Mar should be an up month, this is a Canadian ETF X2 based on NYMEX Natual Gas price, however there are US & London based ones that are similar. If you dont like the leverage pick an unleveraged one, so that even if you are wrong you have a fighting chance to get out later at breakeven

Mike912

If Obama is successful in implementing the "carbon credits" plank from his campaign, money will chase the cleanest financially viable alternative to oil which would put NG square in the crosshairs. Until then I'd like to see some oversupply worked out of the NG market coupled with a bottoming in that chart with a move to the upside, or some sign that this mess we're in has a light at the end of the tunnel.

I'd prefer to go with an unleveraged etf as the above may take a lot longer than any of us care to imagine. Being on the wrong side of a leveraged etf is too punitive for my liking.

A couple of years from now we may all be kicking ourselves for not buying as much NG, oil or gas as we could handle around these levels.

silverharp

Mike912 wrote: »

I'd prefer to go with an unleveraged etf as the above may take a lot longer than any of us care to imagine. Being on the wrong side of a leveraged etf is too punitive for my liking.

A couple of years from now we may all be kicking ourselves for not buying as much NG, oil or gas as we could handle around these levels.

my own view is that it is just a short term punt looking for a technical rally inspite of the fundamentals. I havnt looked at NG before but from memory the production cycles are quite short , so if they stop drilling supply would drop quite quickly?
No arguments with the unleveraged ETF , I'm guessing at $4 NG is at or below the cost of production for many producers, so you would be right eventually even if your wrong short term.

Mike912

silverharp wrote: »

my own view is that it is just a short term punt looking for a technical rally inspite of the fundamentals. I havnt looked at NG before but from memory the production cycles are quite short , so if they stop drilling supply would drop quite quickly?
No arguments with the unleveraged ETF , I'm guessing at $4 NG is at or below the cost of production for many producers, so you would be right eventually even if your wrong short term.

Agree on the technical angle, would love to see a short term catalyst however, on top of the technical argument, regarding the economy, to convince me to forego the pain of misdiagnosing bottoms endured in the past. I'm Interested in your seasonality comment?

I'm no expert on NG, but firmly believe that currently we're in a new paradigm regarding it's pricing. The state of the economy now holds more sway than even the coldest of weather forecasts. Stores are up 15+/-% yoy but February saw a draw down for the first time in months so a March snap back on supply/demand might be forthcoming. Re: $4 NG, that price alone, if it becomes range bound, will bankrupt jr drillers eventually, which would add another reason to own NG long term.

Thanks for the idea, will be watching it closely.

Brent may be the standard but I'm also watching US crude. The volatility vs Brent may create more trading opportunities. US Crude oil is in the mid $40's. I'm expecting a pullback to the mid $30's, and then will buy as much USL as possible for the long term (3-5 years). We're predestined for a hyperinflationary world economy once economies gain a foothold, the US dollar will plummet, oil is priced in dollars, oil reserves are declining, could there be a better set up for a trade?

silverharp

Mike912 wrote: »

Agree on the technical angle, would love to see a short term catalyst however, on top of the technical argument, regarding the economy, to convince me to forego the pain of misdiagnosing bottoms endured in the past. I'm Interested in your seasonality comment?

I think the catalyst could be a turn down in the dollar , DX looks overbought in the short term, so a DX down , S&P up would be enough to give most commodities a break. The XNG NG stock index did not confirm the low in NG , so they are the kind of divergence I was looking out for.
I dont have any first hand data on the seasonal comment I made, it was a comment from an analyst I know who simply said the seasonals were favourable. I had a look back at a 10 year chart of NG and you could argue the importance of it, I;d go with the other reasoning.

Mike912 wrote: »

Brent may be the standard but I'm also watching US crude. The volatility vs Brent may create more trading opportunities. US Crude oil is in the mid $40's. I'm expecting a pullback to the mid $30's, and then will buy as much USL as possible for the long term (3-5 years). We're predestined for a hyperinflationary world economy once economies gain a foothold, the US dollar will plummet, oil is priced in dollars, oil reserves are declining, could there be a better set up for a trade?

I'm using a concept of looking at the real price of gold or gold / commodity index. Gold underperformed since 2001 and in a post bubble contraction gold would be expected to outperform commodities. I can think of a dozen good reasons why oil should be a buy and hold but you have to factor in how bad the global economy will be. I can see Dow/Gold going from 5/1 to 1/1 over the next couple of years

daveirl

This post has been deleted.

silverharp

daveirl wrote: »

This post has been deleted.

Here is a similar point being made. Whn I use them I tend to only hold for a month or 2 at the most.

http://seekingalpha.com/article/122222-uso-death-by-a-thousand-contangos

USO is not a long-term proxy for crude oil. Buy-and-hold investors who do not understand the structure of USO will underperform crude. Surprisingly, many investors, judging from their posts, don’t know this even though the information is readily available on the USO web site and elsewhere.


USO holds all its funds in next-month WTI futures. For example, USO started out February fully invested in the March WTI contract. Midway through February USO rolled all its funds into the April contract. The rollover has all been done on a single day, but USO recently decided to rollover over a multi-day period to minimize market impact.


When oil is in contango, far months are more expensive than near months so USO’s rollover loses money. The loss is mitigated somewhat by the interest USO earns on its funds (only 10% of funds are needed to secure a contract). Also when oil is in backwardation the rollover makes money.


However, over USO’s history, oil has been in contango more often than backwardation. Consequently, over its history, USO has lost value relative to oil. The ratio of one USO share to the price of crude was 1.0 when USO was launched. Today the ratio is 0.68. It’s essential to appreciate that this process has NO intrinsic lower limit: a prolonged period of contango can drive USO down indefinitely even while spot oil remains unchanged.


Anyone considering a buy/hold strategy for USO today should be aware that oil has been in very steep contango and likely will remain thus for some months to come. This has been very costly to USO in recent months as a comparison of crude prices to USO readily shows.


In summary, while USO is a useful short-term oil proxy, it should not be used as a long-term proxy without some strategy to minimize value erosion through contango, such as writing monthly covered calls.

silverharp

looks like NG finally got caught up in the commodity run , might be just short covering , but seems like the change in trend is more then a 1 day wonder