This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Dave Fry: The Time Has Come for Natural Gas


I receive more comments and requests for coverage of UNG (United States Natural Gas Fund) than any other ETF. Bottom pickers have been (without success) trying to get aboard UNG since its long decline began. Whether at $30, $25, $20, $15, $10 and into the single digits speculators from T. Boone Pickens to Easy Pickens only found Slim Pickens.

The problem has been twofold; government disinterest in the product combined with oversupply. Further, UNG like other energy ETFs have suffered from contango conditions. This occurs when back month prices are higher than front month as UNG is required to roll forward contracts from monthly.

Below is the stated objective of UNG as posted on the sponsor's website:
 
The investment objective of UNG is for the changes in percentage terms of the units' net asset value to reflect the changes in percentage terms of the price of natural gas delivered at the Henry Hub, Louisiana, as measured by the changes in the price of the futures contract on natural gas traded on the New York Mercantile Exchange that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire, less UNG's expenses.

From the CME (Chicago Mercantile Exchange) is an abbreviated look at the current price contango:
 

 
But now we're seeing some hope courtesy of the BP Gulf oil spill that has allowed natural gas to leap to the forefront as a readily available and environmentally friendly alternative to oil.
 
Let's first look at the natural gas front month contract ($NATGAS) traded on the NYMEX. What you'll notice here is a similar price decline as demonstrated by UNG in subsequent weekly charts. The important thing to remember is that comparing the price here to UNG can be apples to oranges given contango issues and how UNG is priced in terms of percentage change vs the raw price.
 
 

 
Now we turn to UNG itself and you can see the long downward pattern that has caused so much pain and loss to any bottom picker.
 
What we have suggested for many months would be buyers wait until a weekly close above the 22 period moving average occurs. You can readily see this may occur now. But, we should remember other unique factors are at play beyond speculative demand. These include the Gulf spill and the approaching hurricane season. These are factors both political on the one hand and hard to forecast weather issues.
 
 
 
To avoid contango issues the sponsors have listed UNL (United States Natural Gas 12-month Fund). This issue avoids some of the difficulties associated with the rolling of contracts month to month with the entire asset base by dividing contracts equally over a 12 month period.
 
But this issue has less history to evaluate from a technical perspective when analyzing weekly charts.
 
 

 
Now, if investors prefer stocks over the product given its unique complexities then there is FCG (First Trust ISE-Revere Natural Gas Index ETF) which is an equal weighted index of companies that derive most of their revenue from natural gas production.
 
From a technical view we see little other than a trading range. Naturally FCG can be more subject to the whims of stock market movement than the price of natural gas. Therefore, sometimes the best approach is--if you want natural gas, buy natural gas period.
 
 
If you're looking to finally profit from natural gas, now might present a better opportunity with a variety of choices.
 
For the ETF Digest , we'll wait and perhaps make our move next week.
 
Disclaimer: No positions in UNG, UNL & FCG

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
UNG $12.87 0.00%
UNL $12.29 0.00%
FCG $10.47 0.00%
YHOO $42.94 0.00%
AAPL $130.28 0.00%

Markets

DOW 18,010.68 -115.44 -0.64%
S&P 500 2,107.39 -13.40 -0.63%
NASDAQ 5,070.0260 -27.95 -0.55%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs