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Is It a Bull Trap for Natural Gas Traders?

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Nov. 20 2020, Updated 1:32 p.m. ET

Natural gas prices

In the past five trading sessions, natural gas (UNG) (BOIL) (FCG) April futures have risen 1%, closing at ~$3.01 per MMBtu (million British thermal units) on March 22, 2017—2.7% lower than the previous session. Natural gas futures fell because of higher temperature forecasts. Natural gas has traded between $2.88 and $3.11 per MMBtu over the past five trading sessions.

In the trailing week, the Energy Select Sector SPDR ETF (XLE) fell 1.8%, and the S&P 500 Index (SPY) (SPX-INDEX) fell 1.5%. The Dow Jones Industrial Average (DIA) (DJIA-INDEX) and the technology-heavy NASDAQ Composite (COMP-INDEX) (QQQ) both fell 1.3% during this period.

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Last week, cooler weather forecasts caused the rise in natural gas prices. Weather is an important driver for natural gas prices. Apart from the warmer weather, rising oil rigs could be a concern for natural gas prices. (We’ll discuss how oil rigs could impact natural gas production and its future outlook in Part 2 of this series.)

Key moving averages

On March 22, 2017, natural gas futures were trading ~3.9% below their 100-day moving averages, but 3.8% above their 20-day moving average. Prices below the 100-day moving average indicate an upside resistance for natural gas prices. Failure to successfully break and sustain above this resistance could mean renewed weakness in natural gas. In the absence of any weather related support, the recent rally in natural gas could prove to be a bull trap for traders.

Notably, natural gas price sentiment impacts ETFs like the ProShares Ultra Oil & Gas (DIG), the PowerShares DWA Energy Momentum ETF (PXI), the Vanguard Energy ETF (VDE), the iShares US Energy (IYE), and the Fidelity MSCI Energy ETF (FENY).

Series focus

In this series, we’ll analyze how fundamental drivers like the rig count, natural gas inventories, and the US dollar impact natural gas prices. We’ll also discuss what the natural gas futures forward curve might be indicating.

Continue to the next part for a look at how the oil rig count impacts natural gas prices.

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