Morning Update Dec 20, 2019

It’s hard to be still right now. I’ve placed a stop on UNG back at $17.5, my break even price. I am going to take a chance on the entire position. If the account were $100k or more, I would be reducing, maybe even half of the position. The price does seem to be moving a bit fast, and never moves straight. I’ve drawn a pink line where I feel the price of NG could correct to. Maybe not today, but at some point along the way. I haven’t studied this so much, but I know that when the price moves too fast, it will correct. I hope to learn a better way to gauge this soon. So the pink line is base on previous moves, where corrections happen while the trend continues higher. In other words, this slope looks more accurate to me than the current price trend.

NG1 Dec 20, 2019 on 1hr chart at Tradingview.com

The following image is an interruption, because it’s Friday. I feel the need to share this when it happens.

How do you suppose that is possible to have the bid above the ask

In short, looks like production is continually weak. Temperatures in the Northeast have been quite cold the last couple of days. This could be contributing to some freeze-ups with production. The weather forecast, according to the map, is still teasing us with some cold coming, but has yet to be reflected in big HDD numbers. This could come with perfect timing over the weekend. I can’t count on this, but just say it would be nice. The rest of the story is about the same as the last couple morning updates. Be sure to go back and read that last few days if you haven’t. Hope everyone has the best weekend ever.

Oldinvestor

Morning Update Dec 19, 2019

I’m still long and looks as though I may be adding to my position today. Currently at yesterday’s low and we have the rest of the day. That being said, what do we have?

  • US production is still weakening
  • Canadian Imports are picking up the slack (keeping production high)
  • LNG is holding near record highs
  • Power burn looks surprisingly high (to me)
  • The market has tightened (demand keeping up with supply, but will it last)
  • Weather is being weather
  • The price (barf)

So much for continuing the trend higher this morning leading up to the EIA report. It is quite common for prices to creep up a little late Wednesday and early Thursday in anticipation of the EIA report at 10:30 Est time. If you’ve never seen it, click this text to go to it.

Weather is not helping at all. I’m not sure if or how anyone can rely on the forecast past 10 days. 11-15 days out keeps toying with the idea it will get cold again. This seems to happen as some point every year and leads people on every year. I’ve learned that sometimes you can go long on the chance weather will flip, this is not one of those times. I’m not counting on weather to help me out.

I’ve hit on this a lot, but let’s revisit production. The market is still oversupplied. Production is expected to weaken soon, if not already. This does not mean the market is at bottom. I believe $2 NG is still a very likely occurrence. I’ll share a drawing I whipped up just now.

Oldinvestor handywork using Paint! Oversupply example.

Everyone keeps mentioning how the market is tightening up. This is true, but just like a chart that bounces around on the way up or down, the supply/demand balance will bounce around before becoming under-supplied. I honestly believe we have another spell of increases in production. Take that with a grain of salt, because I don’t really know this to be true. I just can’t help but think we are not going to get the breakout we want yet. Production often fluctuates for weeks at a time, and currently the market is swinging toward under-supply, but could swing back any time. I should try to find more info on this.

I’m running out of time, quickly, LNG. LNG continues to be awesome, which leaves a lot of room for disappointment here. All the LNG facilities are running great, until one doesn’t. Just keep this in mind, a bearish surprise could lie in wait here. Something to look forward to would be LNG additions for 2020, though this still doesn’t help us right now.

LNG consumption at RonHenergy.com
LNG export facilities – planned additions at RonHenergy.com

I don’t have access to much power burn data and haven’t looked at EIA much. I just know it’s very high right now. Ron H also has some info for this as well. I’ve shown winter months to give a comparison of how power burn looks in winter, and right now seems high for the amount of cold we’re seeing in the US.

NG demand for Electricity Generation at RohHenergy.com

On to the price. The part I’m not so good at. Daily chart looks to be following the channel and will be headed to $2 soon.

NG1 Dec 19, 2019 on Daily chart at Tradingview.com

Looking at the 2 hr chart, we also look doomed as well. There is a small chance prices hold here, and get some help from the EIA report. This again is not something to count on.

My real assessment is that NG is headed lower. So why not just short it? Pricing is low enough to be more painful to producers than to my being long a 20% UNG position. Pricing right now should be more painful to long NG traders than to me with a 20% UNG position. Pricing is in a range to fix pricing. Managed money position I mentioned in my Dec 17th post is still going to be near or maybe at a record short ratio of longs vs shorts. I’m building a position. I’m feeding an old habit here that I refuse to kill off. A trader would tell you I’m an idiot, that I need to set and use stops here. Which is probably true, if I did that I might make more money. I’ve also had success by doing exactly what I’m doing and I’ve adjusted my method so much that these days I come up short because I’ve not taken a large enough risk on the trade. This time will be no different. I’ll build up my UNG position, the market will turn, and I’ll make another % on my account; the way I know how.

I still have an order in to add to UNG at $17.05 with 20% of funds. I’ve cancelled it. I’m afraid the market isn’t going to give me what I want ($17.05) so I’m going to adjust here and add 10% of my funds now and wait to add 10% more on a dip (if it happens.) Watch for updates on Twitter.

Oldinvestor

Update: 10:02AM Est time. I bought UNG with 10% of my funds at $17.17. Currently my average is $17.5. I’ll place an order to sell the shares I just bought at my average of $17.5. I’ll also place an order to buy at $16.93 with 10% of funds.

Current Orders:

Buy: $16.93 with 10%

Sell: $17.5 with the previous 10% purchased this morning.

This will help manage the risk on my account if I can get sold and leave some to make money on if the market decides to turn here. I’m fine with going lower, we’ll just have to be patient if that happens.

Morning Update Dec 18, 2019

Waiting for a spark. As for my position, this will pretty much be the theme, waiting… I’ll be waiting for gas to actually make a move toward $2.2 to add to my position or move closer to $2.75 to sell out. I wouldn’t mind $2.5. I have placed an order to add to my UNG position at $17.05 with another 20% of funds. This order is a limit day+extended hours order, allowing it to be bought any time the market is open.

So I got busy at work, back now. Need to make this quick. Weather sucketh, both GFS and ECMWF. Short positions may make another push here. I welcome this, my bad habits could make me some money here if things will continue to get worse just a little longer.

NG1 Dec 18, 2019 on 2hr chart at Tradingview.com

So one might have argued that RSI was on a diverging path from NG pricing the last few days, signalling this move lower. I’ll be watching this some and testing this theory over time from now on. Learning a lot of these new technical terms and how they work feels useful, but we’ll see. There is a man, as evidence, whom I know well enough to know a person can trade solely on fundamentals. I would argue I’m trading on a macro fundamental course right now with UNG. I have a plan, one that is keeping an eye on not just NGG20 contract, but further down the curve to keep me out of trouble.

Speaking of the curve. If you haven’t already, it would be good to learn what’s going on with the next 6 months of contracts, and be aware of their movements. Learn what backwardation and contango mean. It doesn’t have to make sense right now, but it will help in the future.

Ok, so that’s it for now. I will not be stopping out of my position. I have to order in to buy at $17.05 on UNG with 20% more funds. I started holding this position on Dec 17, and you can read about my reason for buying on the Dec 17 post.

Oldinvestor

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 Spreadcharts.com

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.

Oldinvestor

Morning Update Dec 16, 2019

What we know

  • Production is has weakened at least for now
  • Currently it is cold out, raising HDD
  • The forecast isn’t showing cold coming in the near future
  • Managed Money remains at record short positioning

I believe these would be the key elements to start this week off. This is not so different that any other week. If production strengthens, the price should drop; if the weather forecast turns colder, the price should rise. These variable, to me, make it difficult to have confidence in a direction.

NG1 Dec 16, 2019 on 2hr chart at Tradingview.com

The chart isn’t helping. Pricing is at a crossroads here. It would appear that pricing should break out here in either direction. I lean bullish due to pricing and weakness in production. I’m not yet willing to buy anything based on that feeling. I will remain out and wait to see what happens today.

Oldinvestor