Yes the bad joke continues! The bearish commentary continues to pile up against Natural Gas and yet day after day the futures fall in what appears to be a “controlled and regular” fashion. In the last month alone near dated futures have fallen by some 25%! We like contrarian trades but this one sure does feel like catching the proverbial “falling knife”! We don’t want to get involved in arguments regarding the ratio of crude to natural gas and all the fundamental reasons as to why natural gas is falling and about to go materially lower (storage levels etc). What we do want to highlight is the high correlation between electricity futures and natural gas futures and the “potential” bottom forming in the electricity futures. Obviously this raises another issue and that is whether or not electricity futures lead natural gas futures or is it the other way around? Of course the exciting part is that we are about to find out!
The graphs below give the price series of the Mid Columbia Electricity Futures Contract and the Near Dated Natural Gas Futures Contract.
Oh yes patience is certainly a virtue if you are a natural gas futures/UNG holder!
Our wealth creation portfolio is up 14.6% since the beginning of the year with approximately 40% of the volatility of the S&P 500. This portfolio is not leveraged.
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