I was waiting for further evidence if traders should be positioned in bullish or bearish trades in natural gas. At least from a technical perspective I think longs are warranted though the fundamental picture is anything but bullish. Inventories are extremely high and looking back at a calendar this is not the time of year where we generally see any significant upside. As we all know past performance is not indicative of future results but I think we need to pay attention to seasonality whenever weather is in the picture and could be a component in the trade.
An interim low may have been established last week as lower trade was rejected and as of this post on the day prices are higher by 3.42%. If we see consecutive settlements above the 8 day MA; identified by the orange line in the chart above that would be a further sign of a low being established. I suggest using the Fibonacci levels as your upside targets. My favored play is bullish trade in May or June futures while simultaneously selling out of the money calls 1:1.
From a risk to reward perspective selling the option would provide a mild cushion. However if we were to make a new low I would cut losses on the futures and close out the option hedge at a profit. Looking at a new low vs. a 50% retracement on a trade back near the 100 (light blue line) day MA which I feel is probable… I see 18 cents of futures risk minus the hedge and a profit objective of 25-30 cents.
Click to enlarge.
By. Matthew Bradbard
To discuss in more detail this chart or any other you can reach me at: mbradbard@rcmam.com or 954-929-9997
Risk Disclaimer: The opinions contained herein are for general information only and are not intended to provide specific investment advice or recommendations and are not tailored to any specific’s investor’s needs or investment goals. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results.
