Zhong Lu

Winter Storms Hitting Continental US

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Thanks for posting the forecast.

It seemed that around three weeks ago the market bought into the 'extra cold winter' hypothesis and bid the price up to $2.86. The colder weather didn't seem to be very widespread, which was then followed by an 'Oil Price' commentary on email that seemed to state there was ample supply even for a worse-than-usual winter, and the price has now trended down into the two fifties.

Optimistic traders are looking for an explosive movement upwards in price well north of three dollars, but I am wondering how realistic this expectation is and what type of weather conditions or other factors need to align to generate this anticipated fierce upwards momentum.

Any thoughts you care to share witll be greatly appreciated.

Thanks very much.

 

---

Disclaimer: Long NatGax 3x ETF, position underwater at the moment.

 

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(edited)

Don't know about longer term trends but I bought UGAZ 13.4 yesterday.  In the previous spike had sold @ 19.4 after averaging in around 14.5.  I'd just hold right now.  Should be going up right now.  After that it depends on weather.  Shorts are covering (see COT reports) which is good and bad- it means some of them are already running for the hills, but it also means there's less people to cover.

In the future I wouldn't baghold UGAZ.  That's really for day/swing trading.  If you're going to baghold over winter for natural gas, use UNG.  The decay is insane.  It's losing an average of 4 or 5 cents/day.  If you lose on a bet, just take the loss and exit immediately.  You can always re-enter later.  

Edited by Zhong Lu
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(edited)

One other thing: if natural gas ever hits 2, buy UNG.  It's guaranteed money and you can safely baghold.  If it drops further to like 1.8 or 1.6, sell half and use the proceeds to buy UGAZ.  No way natty stays under 2 for long.  

Edited by Zhong Lu
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Thanks for your reply, much appreciated.

I am also of the opinion to hold on for a while, I am in no hurry and we are at the beginning of winter, there could be a possible three months of cold weather ahead.

And by the way, I'm not using UGAZ or UNG, my exposure is through an ETF on the Milan exchange; I do appreciate your remarks on decay though, it is easy to overlook that with some instruments.

People talk about seasonal trading sometimes (sometimes they prefer not to talk and keep whatever insights they have to themselves) and there's a lot I have read about equinoxes, moon cycles and so on, much of it contradictory, but when we are talking about winter/cold and summer/hot, it doesn't really get any less controversial than that for a 'seasonal trade'.

Good luck with your positions, I will post any weather or other interesting material I discover on this thread, it always helps to know more.

Thanks again!

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Somewhat negative news if you are long:

" That warmer forecast hurt natural gas prices as well. Overseas there is more talk of an oversupply of LNG. Reuters reports that,  Singaporean gas importer and marketer Pavilion Energy has taken the unusual step of canceling the loading of a liquefied natural gas (LNG) cargo from the United States, but has agreed to pay for it, several industry sources told Reuters. The global LNG market is awash with new supply amid slowing demand in key countries such as China and Japan, leaving some traders with cargoes they have bought but are unable to resell. “Pavilion Energy evaluated scheduling and other commercial matters, then took the decision not to lift the cargo in full coordination with the supplier,” a spokeswoman for the company said. "

Quoted from: https://blog.pricegroup.com/2019/11/20/no-collusion-the-energy-report-11-20-19/  (last paragraph of article).

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(edited)

I'm aware.  Either way the price action is making me nervous.  Should have pushed higher on the news (weather and storage).  Fact that it didn't is bearish.  I'm out @ 13.77.  Cancels out CRK trade (sold NOK @ 3.45 a few days ago when I got nervous too).  

EDIT: LOL.  And it pushes to 13.9 right after I sell.  Whatever. I can always buy back in later.   

Edited by Zhong Lu
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(edited)

Here's the logic: if the bulls really were in control, Jan futures should have pushed >.2 or .3 or more on news.  Fact that it didn't (barely at +.2) is why I'm nervous and why I left.  We'll see if I'm right.  (Could have just sold too early).  

Edited by Zhong Lu

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I'll check again @ 3:45. If it closes near the highs I'll jump back in. Friday's generally a continuation day.  

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Yes, I agree with you in that the market seems to be reacting too cautiously at this stage if we are to expect a near term swing up. Having said that, I just do not know this market well enough to state that with anything other than anxiety, anxiety that my position is under water and might be for a while.

I watched the market form what looked like a firm bottom at around 2.30, I then watched it rise to the 2.80's and thought that we might be seeing a repeat (or similar action) to last year's spike up in price. I also took the view that seasonal weather seems to be more exaggerated, summers seem to be hotter and winters seem to be colder, so that helped me form the view that similar circumstances might be in play this time around.

I am happy with my position size so do not mind if it takes a while to turn around. Sometimes I can be my own worst enemy jumping in and out of positions so with this Nat Gas play, I am calling it a 'seasonal play', so I actually have to trade it like a seasonal play otherwise I should just stay clear, learn more about the market dynamics and trade something I am more familiar with... however, despite all the inertia and sideways/downward trend, I'm going to hang in there.

If this was mid-January, or worse, mid-February, I'd be cutting and running if the price action remained flat or negative.

The other thing to note is that "climate" is such a politicized thing right now that it is hard to get anything firm on which to base a projection, as most forecasts (that are available without large subscription) are only two weeks looking in the the future and most of them seem to tend towards a consensus, perhaps because by suggesting that the forecast is normal/benign, then it reduces the threat of litigation? Who can say.

Anyway, good luck!

 

 

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I'd be interested to hear how your ETF is reacting when it opens (I assume yours is US-based?).

The EU based ETF that I am in has tracked the Nat Gas price quite closely (3x long) for the last couple of weeks and has risen when the underlying has risen and fallen when the underlying fell. However, today, and for the last four hours or more, the ETF has been up approximately 5% for the day even though the underlying has only shown a somewhat benign rise of around 0.27%.

There could be a number of causes for this, either the market makers oversold the downside previously and are buying back to square their ledgers or, just possibly, there actually is increased investor demand for the ETF, irrespective of the price of Nat Gas, and investors are hoping to get in before any anticipated rise in price.

I see these distortions in pricing sometimes but they normally level out within an hour or so, but today has been different, the ETF is up 5% when the underlying spot price is essentially flat and this has been going on for most of the trading day in Europe so far (now just after 2pm Milan time).

Please let me know if you see anything similar with the pricing in your ETF.

Thanks a lot.

 

Update

ETF now up 6.76% verses the underlying at +0.62%.  [14:11hrs Milan / 08:11hrs, New York]

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(edited)

Saw confirmation of break out from lows in the move up today, up 8% so far, so I jumped in to UGAZ (our 3x etf) @ 15 just now.  Should have bought back yesterday late afternoon @ 13.8 but I had to leave the computer for work. Oh well.  I don't mind averaging up though (but never average down with 3x etfs).  Currently Jan. contracts, which our etf tracks, is trading @ 2.71.  Underlying is up 3%. ETF is up 9%.  Seems to be tracking well.

Note: Are yours tracking Dec contracts or Jan contracts? 

Edited by Zhong Lu

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Always risky holding over the weekend but with the price action it's the right move.  Doesn't mean it'll make money (depends on confirmation of cold trends).  Wish I had held Thursday, but I sold like the fool that I am.  Going to stop looking at this now.  Less stressful this way.  

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Yes, it was good to see the price action in the US time zone, it essentially suggests that some players were loading up on the leveraged ETF in the European trading day before buying the futures later in the US as it seemed much more 'pre-planned' than anyone just reacting to the rise in the underlying. But really, who can say? As a retail investor, I am just a price taker.

Interesting that you asked about which futures month my ETF was tracking. Last time I read the small print they were basically tracking the front month and are "continuously rolled" as the verbage goes. However, this was only for the 1x which I don't often use:

https://www.wisdomtree.eu/en-ie/-/media/eu-media-files/key-documents/factsheet/etf-securities/factsheet---wisdomtree-natural-gas.pdf

In the 3x, it's not tracking the futures price directly, it actually tracks this:

https://www.nasdaq.com/market-activity/index/nqcinger

As you can see from the first paragraph in the 3x factsheet:

https://www.wisdomtree.eu/en-ie/-/media/eu-media-files/key-documents/factsheet/boost/factsheet-boost-natural-gas-3x-leverage-daily-etp.pdf

But really, one way or the other, they all relate back to the futures price which is the dog that wags the tail. It's all pay to play as an individual investor, our job is to get the direction and timing of the move right, you can be sure that the issuers are always making money 😉

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(edited)

Sold UGAZ in time. Only down 8%.  Sounds horrible but it's just lost profits.  

UGAZ and natural gas 3x etfs are the CRYSTAL METH of trading.  Currently I'm ahead by a bit- still hurts though.  I'll take this loss as a warning.  Time to quit and STAY AWAY.

Edited by Zhong Lu
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