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Natural Gas & Unleaded: Use the Best of Your Experience

by Roger Wiegand
Trader Tracks from www.miningstocks.com
December 12th, 2005

“Experience is what you got by not having it when you need it.” –Anonymous

Natural Gas Weekly Chart with Bollinger Bands Shows Several Trading Ideas

Our gas chart with Bollinger Bands has three lines; a top line resistance, bottom line support and neutral line in between. Note for the first half of this chart price bars are staying near the top line crowding it with a buy signal. Gas has shown a bullish tendency throughout the entire chart with three spots where price returned to the neutral line or dropped slightly below it. A long term investor would have bought the gas and stayed with this position except for the 2004-2005 December-January selling blip. When price sits in the middle we should be out and doing nothing. When price rises from the lower support channel or up off the neutral line we are buyers. Since the overall chart has an upward bias long, we should not go short but be either long or out. However, notice in October 2005 near the far right, our top and bottom band lines have spread far apart. This is a selling signal saying a price drop is ahead. The first price bar right on the October month line closed out below the top blue line. This is a clear signal to go short or to watch for a coming short position. If a trader sold the gas futures short at 14 and exited at 12 on good technical signals, the earnings are quite good. November then had four weeks of sideways range bound trading and is an excellent spot to stay out. Our first December buying price bar shows two things; one is a strong rally in upward thrust and two, the price closed at the bar top which means more buying ahead. The selling from over 15 to support at 12 is a standard A-B-C correction. November’s sideways prices are typical after a correction as gas price investors are deciding where we go next. If natural gas was your preferred trading and investing market you could check price once a day on the daily chart after the close for indicators. Your actual trading decisions should be indicated by the weekly chart but by using the daily chart for entry and exit we get a finer, more accurate price point. Be a buyer when price is coming up in trend from the bottom line and be a seller when price has topped against the top line, pivot reverses and heads downward back toward the middle. Prices are always seeking neutrality or equilibrium. This means the can go high or low but eventually go to the middle or neutral line. If we are swing trading (not day trading) gas, we could be in for a few days or a few weeks. By using protective stops and working for the “slice out of the middle” we can avoid trying to call tops and bottoms which almost never works and can hurt your accounts. Bollinger Bands are a good tool for traders and investors. When used in conjunction with other indicators, we tighten up our entries and exits even more while achieving more accuracy in trading.

Futures & Commodities - More Gas Pains

Market Patience Will Get You What You Want

“You can’t always get what you want, but if you try sometimes you’ll get what you need.” –Anonymous

We worked on an analysis of energy markets for many hours over the fall season and in the aftermath of major hurricane damage. In our view, markets were very reactive to shorter price signals but did not account for the bigger picture. Considering all the unnatural disruptions I guess we should not be surprised. Energy prices moved into our forecast ranges this week and finally behaved as we though they should. It seemed it took a very long time for natural gas, heating oil and gasoline to understand the true and accurate picture of shorter than forecast supplies. This tells us there is much too much trust in numbers supplied from certain reporting areas if you get my drift. What was not recognized in our view is the fact that European refined and unrefined energy products were quickly shifted to cover USA weather damage shortages. If they had not we would have had a disaster. Next, some crude oil supply was released from the Strategic Petroleum Reserve Emergency Supply providing missing product after hurricane damaged refineries began returning to normal operations. It is common practice for loaded ships coming out of the Middle East to be redirected en-route. The shipping supply chain is such that boats are loaded and move out to sea in a continual delivery stream. When Katrina wreaked its havoc, had those ships not been diverted to immediately help, USA auto gas lines would have formed after major immediate shortages. As it was commercial aircraft had barely enough fuel to skip by on the skin of their teeth using creative planning and diversion of planes to cope with the jet fuel shortfall. It was all done so smoothly and with so few interruptions our country hardly noticed any problem. Little do we know how close we came to one big messy, disaster. These unnatural market aberrations showed us pricing disturbance leading investors and traders off in wrong directions. Trader Tracks felt the entire price episode did not make any sense as product had to come from somewhere and somewhere was not the normal origination point.

Now, as Europe must replenish its own supply and stave off their very cold winter with new heating oil reserves, “the heat is on so to speak.” A friend sent us the government’s short term energy outlook report for December. We were hoping to find some good research info for the Tracks. After reading the first of five pages I just put it down as I disagree with not a few things but everything they are saying. In our view their analysis is flawed from beginning to end which was surely proven on recent price adjustments.

Natural gas is in short supply as sources were badly damaged. Further, gas is not easily moved around as most of it is delivered by pipeline not ships. Warmer than normal weather briefly fooled the markets but now traders understand shortages of product. This energy market is showing us the best opportunity for rally advancement of this entire group. Crude oil is not short in the shorter time frame but is adequate. Heating oil and gasoline have based and are rising in price as now we must stand on our on two feet and refine our own product to keep up with needs. Europe’s help is mostly over as they must help themselves today. Look for heating oil on February’s futures contract to rise form $1.75 to a minimum of $2.00. If the cold weather is abnormal, price will rise to $2.40 the recent all time high. April unleaded prices declined considerably but have based and are headed up in rally once again. We are too early to see where this one goes but we are sure it is much higher. Unleaded rose +$.08 since our last letter; this is substantial.

by Roger Wiegand
Trader Tracks from www.miningstocks.com

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