It's understandable if financial bargain hunters are salivating over natural gas. The energy commodity has plunged nearly 26% from its October closing high. Natural gas futures have already dipped to $2.54 per million British thermal units, before bouncing in the last few days, including a rally yesterday that took the commodity up nearly 5%.
So is now the time to dive in? To find out for Tuesday's "Mad Money," Jim Cramer's CNBC show, he spoke with the one person who predicted the latest downdraft: Carley Garner, a technician and commodities expert who is a colleague at Real Money and co-founder of DeCarley Trading.
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Garner is convinced that natural gas won't hit a solid bottom from which it can consistently rise until two things happen: It drops to $2.50 and a ceiling of price resistance around $3.02 or $3.15 disappears.
With that in mind it's important to see that the price - which hasn't hit $2.50 yet - is headed up because of something called "contango," she says. That's a term that describes how the spot price of a commodity is cheaper than the first expiring futures contract, which in turn is cheaper than the second expiring futures contract. Put simply, a commodity gets more expensive the farther out in time you go with futures contracts. It's because of the cost of holding the commodity over time. Natural gas, which is trading with December contracts right, will flip to January contracts next week and that's when we'll see a price bump because of contango. In other words, rather than falling for the next few weeks to the solid bottom of $2.50 the price is going up.