From the linked update above (sorry it's so long, these are excerpts though and I think I need at least this much to get the gist of the update across):
"As to the recent slide in Natural gas, I wasn't able to cover it last week as it happened, but I believe it to be a short term event, one that was not easily predicted unless I am able to deploy the same analytical tools to forecast weather as accurately as the stock market, I'm sorry, but I'm not a weather forecaster and it's these types of fundamental events that are not reflected in the charts because they are not known, they are surprises that are only discounted after the fact which is exactly what happened after last Thursday's EIA Natural Gas report at 10:30 a.m. as usual...
I still have about a half size position I can add to UGAZ long as I was looking for lower prices to fill out the position. The most recent range in yellow to the far right looked like it would be a suitable entry on a head fake move below the range (of 1 -3 days) and a swift move up-following all of the same concepts that preceded this range, just in smaller scale.
However, at last week's EIA Natural Gas Inventories a few things happened....This is last Thursday's Nat Gas inventories knee jerk reaction, initially higher at the 10:30 release and then lower, not unusual and we didn't have any strong 3C signals that would suggest anything specifically was going on, it turns out we would not have had those signals because the reaction to the EIA report was a fundamental news reaction, meaning it was new information that the market had not discounted and thus the rapid decline as the market sought to discount the new information.This is not something we can predict, it's like trying to predict a 9/11 type event, it just happens, there's no advance notice any chart can give you, yet the market will act swiftly to discount the new information.
November of this year began a strong cold snap, some of you may recall the 7 feet of snow in parts of New York, but since then it has become uncommonly warm, right now as I write this Buffalo, NY which saw 7 feet of snow in November is unseasonably warm at 57 degrees. Boston at 45 degrees, even Chicago is above the freezing mark at 39 degrees- so much for a white Christmas. In Anchorage, Alaska some residents are wearing shorts and t-Shorts as the total snow-fall is some 2 feet below the average for this time of year.
Again, I'm no weatherman, but I do know that Winter didn't officially start until December 21st and runs through March, the possibility or even probability of colder weather remains. While this has little to do with the macro theme, it has a lot to do with a potential new position or in my case an add-to to fill out the partial UGAZ long position that' at about 50% of a full position.
This however is not what caused the volatility to the downside starting on the EIA report at 10:30 last Thursday. EIA reports for Nat Gas inventories have been positive for nat gas prices most of the last year, however something changed with last week's EIA report, a draw of 64 billion cubic feet from stocks , however for the first time they reported that inventories stood +0.2% higher than inventories a year ago at this time, this of two major events is what traders chose to latch on to, the first time inventories were higher than a year ago even though they remain -7.3% below their 5 year average for this time of year.
Inventories have remained higher than usual the last few weeks due to unseasonably warm weather, if the trend continues, the 7.3% below the 5 year average we currently see will start to be chipped away at.
However, traders may have missed the forest for the trees or they may have intentionally done so because they did in fact see the forest and used short term events to allow them to accumulate based on longer term realities and the longer term reality is this...
The day before inventories were released, Governor Cuomo of New York banned Hydraulic Fracking in the state. New York has large Natural gas reserves in the Marcellus Shale that runs through the state, making the actions taken by the governor the most significant region to ban Fracking over health and pollution concerns. It doesn't take much to realize that the unseasonably warm snap pales in comparison longer term to the actions NY state has taken that ban the process by which Natural Gas is obtained and in the largest region thus far effected by such a ban.
While the shale region runs from Virginia to the Canadian border, New York's decision may be an important precedent that lowers the volume of natural gas, then this becomes a simple supply/demand issue favoring higher Natural gas prices, irrespective of longer term geo-political developments and US Energy independence. It "seems" traders focussed on the forest of the .2% higher inventories rather than the news the day before of the NY state ban, although it may be that they actually are taking the long view and using the short term .2% issue to create lower prices to accumulate ahead of anticipated higher prices starting with the NY ban and perhaps others to follow not to mention the geo-political events, although Thursday and Friday saw 300k contracts traded so maybe not, but the overall news, which is why I almost added to the UGAZ long today as the EIA released nat gas inventories at 12 p.m. looks bullish for Nat Gas prices, I just figured we are low enough that a few more hours of 3C data can't hurt, and I'd rather have probabilities in hand which I can't get in an hour than to just jump in, although longer term I think this is very positive."
NOW FOR THE CHARTS...
First I want to look at the larger trend as this has always been a longer term idea, not a trade so much although we have traded in and out of it. Looking at the longer charts tends to reduce noise and give us a feel of the overall underlying trend.
However I also looked at Natural Gas futures as well, NG.
I was close over a week ago to filling out UGAZ long, but wanted some additional data as I only had about 2 hours at that point and waiting for that data seemed well worth it.
Overall, I think this is a pretty decent area to fill out the UGAZ position or UNG long, or start a new position.
I like what I see above so I decided to take action now. I would remind though that I see this as a more secular move in Energy, one toward US energy independence based on the many reasons listed in the last update linked above as well as the market "seemingly" not having discounted the New York decision on fracking.
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