Natural Gas May Be Forming a Bottom

09/16/2010 12:01 am EST

Focus: FUTURES

Andy Waldock

Founder, Commodity & Derivative Advisors

November natural gas may very well be forming a tradable bottom at these levels. There are several reasons for this.

1) Seasonal patterns in November natural gas tend from the last week of August through the first week of September.


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2) The Commitment of Traders (COT) commercial category continues to add to their positions, adding 11,000+ contracts last week, which places them within shouting distance of their all-time record long position. Perhaps more importantly, commercial traders are becoming increasingly bearish on crude while building net long positions in natural gas.


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3) The crude oil spread versus natural gas is bumping up against solid resistance at crude oil priced at 20 times the natural gas price. This is reflective of the commercial traders price action.


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4) The COT signals triggered a buy signal for Monday's trade, which corresponded with a technical breakout to the high side.

There are two natural gas futures contract sizes. The full size carries a margin of $5,400 and recent average day range of $1,600. The mini contract is 25% of the full-size contract. The margin requirement is $1350 and its daily range is around $400.

By Andy Waldock of CommodityandDerivativeAdv.com

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