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Seasonal Trades on Gas

01/31/2017 8:00 am EST


Jeffrey Hirsch

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

Based upon the NYSE ARCA Natural Gas Index, there is a seasonal tendency for natural gas companies to enjoy gains from the end of February through the beginning of June, observes seasonal trading expert Jeffrey Hirsch, editor of Stock Trader's Almanac.

This seasonal trade on natural gas has returned 10.8%, 11.1%, and 3.8% on average over the past 15, 10, and 5 years respectively.

One of the factors for this seasonal price gain is consumption driven by demand for heating homes and businesses in the cold weather northern areas in the United States.

In particular, when December and January are colder than normal, we see depletions in inventories through late March and occasionally into early April.

This has a tendency to cause price spikes lasting through mid-April. A relatively mild start to winter this year has kept natural gas prices in check right around $3.30/mmBtu.

Inventories are modestly lower now than a year ago and are slightly below the 5-year average for this time of year. Unseasonably warm weather in the Northeast now is not likely to last through February.

First Trust Natural Gas (FCG) is an excellent choice to gain exposure to the company side of the natural gas sector. FCG could be bought on dips below $26.00.

Once purchased, use a stop loss of $23.40 and take profits at the auto sell, $31.69. The net expense ratio is reasonable at 0.6% and the fund has approximately $245 million in assets.

United States Natural Gas (UNG) is suggested to trade the commodity's seasonality as its assets consist of natural gas futures contracts and is highly liquid with assets of over $500 million.

UNG has average daily trading volume in excess of 15 million shares per day on average over the past three months. Its expense ratio is 1.27%. UNG could be bought on dips below $8.10. If purchased, set an initial stop loss at $7.29.

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