Thursday, April 18, 2013
Commodity prices have collapsed.
Gold has lost $200 over the past week. Oil is down 10% this month. Copper is almost 18% below its February high. And wheat and other agriculture commodities have dropped 20% since November.
Natural gas, however, has bucked the trend...
The price of natural gas is nearly 25% higher this year. Most of that gain came after we suggested the price trend was turning bullish seven weeks ago.
But by the look of the following chart, natural gas may be ready to join the busted commodity party. Take a look...
Natural gas is tracing out a rising-wedge pattern – where the distances between the highs and the lows grow closer together. Most of the time, charts break this pattern to the downside. And the resulting decline usually takes back 50%-100% of the height of the wedge.
We saw a similar pattern around this time last year... Back then, natural gas broke the rising-wedge pattern to the downside. The price fell 20%, and the decline erased about 60% of the height of the wedge.
If something similar happens today, shorting natural gas may work out to be a lucrative trade.
There's still some room inside the wedge for natural gas to push higher. The weekly natural gas inventory report will be released this morning. If there's an unexpected decline in the inventory level, natural gas could pop up toward the resistance line of the wedge. At that point, it would be set up for a low-risk short trade.
Traders could short natural gas around $4.30 and look to cover that short for a small loss if the chart breaks the wedge to the upside.
Aggressive traders can use the ProShares Ultra Natural Gas Fund (NYSE: BOIL) to trade the trends in natural gas prices. Please note... BOIL is a leveraged fund. So it's volatile and not for the faint of heart. Daily moves of 5% or more are common.
Best regards and good trading,
Jeff says traders should also consider establishing short positions on the stock market. Stocks broke down hard earlier this week, and he believes it could be the start of a long-awaited correction. Get the details here: How Far Can Stocks Fall?
Matt Badiali warns about value-hunting in natural gas right now... and updates readers on just how far he thinks gold can fall before hitting bottom. Learn more here: What I'm Telling My Readers to Do with Gold and Silver Stocks.
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