The price of natural gas is fundamentally driven!
In this short trading idea I'm going to explain why I believe looking at technical indicators when trading natural gas is pure garbage. I'm generally not a fan of technical analysis. Let me try and explain my reasoning. If a stock goes up both the technical- and fundamental analyst celebrate. They both think they've figured it out. But lets imagine that company they've bought stock in is a lemonade booth company. The technical analyst looks at the chart and sees that the stock price has gone above the 50-day moving average while there is a bull flag forming so he decides to buy. Not only that, there is also a cup and handle pattern forming when looking at the 4h chart. The fundamental analyst has looked at the product, revenue, net income, debt, cash balance and future prospects etc. and he likes what he sees so he buys. Not only that, the fundamental analyst has also looked at the past news releases and seen that the company has signed a letter of intent with a company that produces a new kind of lemonade extract. Lets say that this LOI turns into a real contract and the stock price goes up shortly after, then who figured it out? If anyone can show me a case where the movement of a stock was completely unrelated to the underlying business developments and futures prospects, I will be delighted to change my opinion. I think it is fair to say that a combination of both technical- and fundamental analysis can be very effective but lets never forget that it is the fundamentals that drive business- and valuation change.
Now lets get back to natural gas.
As you can see on the chart the price of natural gas has amazingly enough peaked every winter. The peak each year has been decided by what month was the coldest. You are welcome to fact check this. When it gets cold during winter, the demand of natural gas increases because it is used for heating. If it is a surprisingly cold winter, then the price will spike more than usual. When it gets warm again prices decline because demand decline.
Do I need to say more?
For the people that have figured out where I'm going you can stop reading, but for the other half here we go. It has been an unusually cold winter in North America, especially in the last three weeks. We saw prices spike on February the 18th at around 3,35 $. If you look at the weather report across North America it is clear that the cold weather is retracing back north. Now natural gas prices will do the same. They will return to pre-winter levels at around 2-2,2 $ in a matter of weeks unless the new administration passes a bill that will further limit production of oil in USA. The main part of all natural gas in North American comes as a byproduct in oil production. Therefore the production of oil is important to look at when determining the future supply of natural gas.
That was all, if you liked the idea give it a like. Follow me if you interested in more similar reasoned ideas.
Now lets get back to natural gas.
As you can see on the chart the price of natural gas has amazingly enough peaked every winter. The peak each year has been decided by what month was the coldest. You are welcome to fact check this. When it gets cold during winter, the demand of natural gas increases because it is used for heating. If it is a surprisingly cold winter, then the price will spike more than usual. When it gets warm again prices decline because demand decline.
Do I need to say more?
For the people that have figured out where I'm going you can stop reading, but for the other half here we go. It has been an unusually cold winter in North America, especially in the last three weeks. We saw prices spike on February the 18th at around 3,35 $. If you look at the weather report across North America it is clear that the cold weather is retracing back north. Now natural gas prices will do the same. They will return to pre-winter levels at around 2-2,2 $ in a matter of weeks unless the new administration passes a bill that will further limit production of oil in USA. The main part of all natural gas in North American comes as a byproduct in oil production. Therefore the production of oil is important to look at when determining the future supply of natural gas.
That was all, if you liked the idea give it a like. Follow me if you interested in more similar reasoned ideas.