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How to Profit from a “Bad News” Natural Gas Trade

A “bad news” rally is one of the most powerful forces in the markets. When a stock or commodity rips higher on bad news, your best move is to buy with both hands.

And bad-news buying is exactly what we’re seeing in natural gas this week, giving you a shot at quick, double-digit gains if you follow this emerging trend today.

Here’s the deal:

Natty has been stuck in neutral near its 2015 lows—even as crude springboards higher this month. Yeah, you already know the price of oil is up more than 20% from its August lows. But natural gas? Let’s just say it’s missed all the fun. Until yesterday, that is…

Natty jumped nearly 3% Thursday, posting its biggest gain in almost a month. Why? Well, the big news was that natural gas producers added a whopping 86 billion cubic feet of the stuff to storage last week. As the Wall Street Journal points out, that’s 40% more than the five-year average.

As you can see, we ain’t exactly suffering through a gas shortage these days. Heck, we’re practically swimming in the stuff. But the price natural gas didn’t tank on the news. Instead, traders started buying.

Natty’s move higher this week should help the commodity break out of its summer funk. Just look at the tight monthly range for natural gas so far this year compared to the sharp up and down moves of the past decade:

Stuck in Neutral

Of course, there’s reason to believe that natural gas can begin a sustained run higher here into the fall. U.S. oil production is declining sharply. According to a federal report, just one of seven shale basins is expected to announce production gains. The others? Well, let’s just say the crude crash has tied production in a knot.

And less drilling means less natural gas byproduct. While I still think our oil snapback play has legs, some experts see natty as the ideal energy trade heading into the final stretch of 2015:

“Both short-term and medium-term, natural gas producers are probably in a better place than oil producers,” Oilprice.com reports. “On the one hand, demand is a mixed bag. It is not rising quite as much as once predicted, but with more power plants switching from coal to gas, consumption will continue to pick up. With energy demand more or less stagnant or at best slowly growing in the U.S., natural gas demand increases need to come primarily from taking share from other existing fuel sources.”

That’s some “bad news” that can really boost your portfolio…


Greg Guenthner
for The Daily Reckoning

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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