Morning Update Dec 17, 2019

Seems everyone is looking for a reason to go long. Year over year S/D numbers look relatively good, mostly thanks to reduced production numbers and continued growth in LNG exports. All that is needed now is some cold weather to send prices higher. I’m still on the fence with going long. I think I’m going to go ahead another small UNG position since short positioning is so high, pricing can’t fall a tremendous amount lower.

For example.

NG1 and COT positioning at

Comparing NG continuous chart from late 2015/ early 2016 to now, we see speculator positioning is similar between these dates. The lowest point was the last posted report. This tells me it’s relatively safe to go long. This is where I’m hung up (on positioning). Fundamentals will work themselves out.

NG Futures chain from Schwab

the NG continuous chart above, when it bottomed out on March 4th, 2016, this was NGJ16 contract. Right now NGJ20 contract is the lowest priced contract already at 2.186 (at the time this screenshot was taken). So keep in mind Jan and Feb contracts closed at or above $2 (Jan currently priced at 2.315).

NG1 vs UNG on daily chart going back to 2015/16

So going long here could still be very hazardous, as shown above. When compared to 2015/16, I have NG pricing start the chart similar to current pricing (2.3ish). This is a very good comparison because the price of NG fell all of 2015 as it is now, and is near the similar pricing at a similar time of year. This is all to show how much further UNG can fall from here.

So when NG was around $2.3, UNG was near $45, and as NG falls to $1.611 in March of 2016, UNG falls to almost half its value to $23. This is a huge hole to dig out of. If you scroll back up to COT (managed money) positioning, it shows shorts are the strongest in October of 2015,. Even though short positions lighten up, the price continues to fall. Current COT positioning is the best thing the bulls have going for them, but it isn’t a magic bullet. It does tell me that as long as COT positioning is at this point, and has shown such persistence to take this stance, we can’t go a lot lower. There just isn’t enough new short positions to push prices a lot lower.

So on a macro scale, I’m about to go buy UNG with 20% of my funds. This is quite possibly the most reckless position (due to size) I’ll have taken on since Nov 2017. I hope I dig myself a hole here to show how I’ll get out of it with a profit. We’ll see. I hope today’s post isn’t too convoluted.


Leave a Reply