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Natural Gas: A Seasonal Trade

03/11/2016 9:00 am EST

Focus: ETFs

Jeffrey Hirsch

Editor-in-Chief, The Stock Trader's Almanac and Almanac Investor

Seasonally, this is the time of the year when natural gas usually finds a tradable bottom, suggests Jeffrey Hirsch, editor of Stock Traders Almanac.

Our long natural gas trade from late February to late April boasts a 72.0% success rate gaining 18 out of the last 25 years.

In the short-term, natural gas appears heavily oversold, as a relatively mild winter has left inventories well above historical averages for this time of year.

If the trend of above-average temperatures persists into spring and beyond, electrical demand could rise earlier and sharper than usual which could lead to a spike in natural gas prices.

Over the longer-term, the US has begun to export natural gas and analysts expect exports could reach 10% of current output by the end of this decade.

First Trust ISE-Revere Natural Gas (FCG) and United States Natural Gas (UNG) are two popular ETFs that correlate with natural gas.

UNG holds natural gas futures and swaps and FCG holds stocks of oil and gas producing companies that are exposed to crude and natural gas prices.

Recent crude strength has begun to aid FCG. It’s January low held in February and its stochastic, relative strength and MACD indicators have turned positive confirming the shift in momentum.

A break out above $4.22 by FCG would be further evidence that the current bounce is sustainable. FCG could be considered a buy on any close above $4.22 with a buy limit of $4.30. If purchased a stop loss of $4.00 is suggested.

UNG has just seen its MACD indicator turn positive and as a result has been added to our seasonal trading portfolio. Trading positions in UNG can be considered on dips below $6.25.

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