Take a look at the chart below, which shows a series of CO2 emissions versus Natural Gas’ Share of Electric Power Consumption. The increase demand for the “clean fossil fuel” versus burning dirty coal to fire electric plants has a lot to do with the secular decline in the relative price of gas. Go China!
F**k Technical Analysis. F%%k Candlesticks. That is the way we feel after yesterday’s post about the sure thing short in Natural Gas futures. When you hear or feel “sure thing” in trading, head for the hills. Hey, but we were right for about two hours in the pre-market, when the January contract traded down to 3.503, down 1.74 percent from last night’s close.
But Nattie is a wild beast, a tiger — it traded in a 6.1 percent range today and closed at it highs. If you’re trading it, you’ve got to set your parameters and time frame carefully. Remember this with caution: JFK said in his Inaugural Speech way back in 1961,
“remember that in the past, those who foolishly sought power by riding the back of the tiger, ended up inside.” – President Kennedy, January 20, 1961
Rather than power lust, JFK could have just as well been talking about trading Nattie!
The January contract closed at a 52-week high and is a chip shot, .888% from yesterday’s 52-week high of 3.747… Hmmmm, .888, what would the Chinese think?
In Chinese numerology, 888 has a different meaning, triple fortune, a strengthening of the meaning of the digit 8.[13] For this reason, addresses and phone numbers containing the digit sequence 888 are considered particularly lucky, and may command a premium because of it. – Wikipedia
Is this why they began their Summer Olympics on 8/08/08? Now we will Trump Technical Analysis with Chinese numerology.
Seriously, though, For What It’s Worth, “There’s something happening here” in Natural Gas.
In this scenario of abundant resources, U.S. companies have been planning on building pipelines and LNG export terminals to ship domestically-produced natural gas to Mexico, Canada and to future LNG export hubs along the coast. These exports hubs will be used for further LNG shipments to markets in South America, Asia, Europe, and the Middle East. – Fiscal Times
Take a look at the price differentials in Nattie across the globe (dated, for sure, but we believe relative prices haven’t changed that much).
The $12 dollar differential in prices between Japan natural gas and the U.S. will lead to an export boom in order to arbitrage these price differentials. It is difficult and expensive, for sure, but the price differential will continue to act as a compelling incentive to export. It should be made easier under a Trump Administration. The world price will eventually converge, with a premium for the cost of exporting, sooner, probably than later.
The first arctic blast of the season has hit — blanketing parts of the Rockies and Plains with subzero temperatures early Thursday and heralding a bitter freeze that will affect more than 200 million people.
But meteorologists are warning about a second, perhaps even colder chill that could spread into the East Coast and possibly portions of the South late next week. A shift in a weather system known as the Polar Vortex may be partially to blame, according to The Weather Channel. – NBC
We are perplexed by the Nattie forward curve, however. Backwardation all the way to the December 2029 contract, which is quoted at 3.17. Very little trading and open interest in these long dated contracts, so take the the prices with a grain of gas, as there is probably very little price discovery or market signal in these contracts. Maybe the market thinks fracking technology will also be exported and the world will have a terminal glut of Nattie?
So there you have it, folks. Our attempt to retrofit fundamentals to a very impressive move in Natural Gas and to cover our ass on a bad call and trade in one of the nosiest commodities in the world.
Just when the bear was getting comfortable the Raven shows up…and not just “gently rapping, rapping at my chamber door.”
Apropos, no?
After hitting a 52-week just above a key resistance this morning, the Natural Gas Jan. futures reversed 5 percent to close at almost the low the of day in after hours trading.
Note today’s outside day or bearish engulfing candlestick on the chart below. After two two days of long wicks on the candlesticks and a stunning 47 percent move higher since November 9th, can there be a better short set up, we ask?
Nattie is one difficult beast to ride and trade and the trade needs to monitored carefully. Your trading pure jet fuel here, folks.
We don’t know where the price will be tomorrow. There could be a huge draw on the EIA data or temps could drop to 75 below in Chicago, or, whatever. But risk/reward screams, “go short, young man.” If you can make money shorting this chart, we think you never will.
Always with a stop!
Good piece by Bloomberg, The Pessimist’s Guide to 2017. Always prudent to stress test your optimistic view as to what could go wrong.
The Pessimist’s Guide to 2017
December 5, 2016
By John Fraher, Flavia Krause-Jackson and Mira Rojanasakul
Donald Trump and Brexit shocked most of the world in 2016.
But not readers of last year’s Bloomberg Pessimist’s Guide, which warned that the unthinkable could happen in both cases. Now the authors are turning their attention to 2017.
From social breakdown in the U.S. to a nuclear crisis in North Korea to the defeat of Angela Merkel in Germany, the potential for chaos is just as great.
These aren’t predictions. But they show what your social-media news feed could look like if things go wrong.
Click here to read piece
“The world’s not just a stage. It’s a casino, and our lives are games of chance.”
So while the technically-driven surge in equities may be over, a historic short squeeze in Treasuries may be about to unfold, as according to DB calculations, shorts in bond futures the largest in over 6 years with positions short across all bond futures maturities; One small change: shorts in very long dated bond futures are being trimmed from extremes, added in other parts of the curve. – Zero Hedge
To that, we say Amen!
Click on table to enlarge and for better resolution
Global Macro Monitor 