What is your reasoning for this projection? I have heard many arguments for nat. gas going much higher. As some examples, production in the US and Canada is declining, demand is increasing, the price ratio of oil to gas is lower than normal (gas needs to increase to get back to normal ratios), hurricane season is just heating up, winter is just around the corner and temperatures are expected to be colder in the US.

I have a lot of nat. gas stock companies, so this topic is very important to me.

Agree w you spreadtrader - I think NAT gas is headed lower - though only for a while.

Stan - where do you hear that Nat Gas supply in US, Canada is low/declining. While nothing lasts for ever, I thought Nat gas reserves are fairly adequate - nowhere near coal, but adequate

That is exactly why we need to tranche into positions. Nice call Spreadtrader!!

Well I lose money too, but thank you. Those are nice compliments.

Really, what I'm trying to achieve by posting some possible trade ideas is a follow through on the theme of this forum and website. That is, the "newsletter" writers and even brokers are no better than YOU at deciding what (and expecially when) to invest. You DO have to learn to do it, but like the ad says, "you can do this". In five years if you're still paying someone $100 or $1,000 or more a year to tell you what and when to trade, then you SHOULD pay them. (After a little more reading and stumbling upon this website, I cancelled my S&A subscriptions after two months. I now only pay the Gumshoe for "newsletter" type info; and it beats the "experts" hands down.)

I especially encourage the people in the generation(s) behind me to learn to trade and invest. Students won't learn it in college. Presently, I'm trying to teach my 20-something kids. Sometimes their attitude is "tomorrow" or "I have no capital yet". It does take time, it's often frustrating and it is hard work. But it will reward you in more ways than one. As I said to someone the other day, I wish I had learned to trade 25 years ago (instead of 8).

Have a good weekend.

"Today I challenge our nation to commit to producing 100 percent of our electricity from renewable energy and truly clean carbon-free sources within 10 years. This goal is achievable, affordable and transformative. It represents a challenge to all Americans - in every walk of life: to our political leaders, entrepreneurs, innovators, engineers, and to every citizen."
-- Comrade Algore in speech announcing his 10 Year Plan for energy.

Apparently, producing electricity from natural gas isn't clean enough. Sell all coal, oil, and natural gas stocks now.

Here is a follow-up to Spreadtrader's excellent call:

http://www.marketwatch.com/News/Story/Story.aspx?guid=c8da106da0604fc6aaa479fe3bc69d94&siteid=nwham&sguid=XG_uJ5NJ-kawFSZVv-taag

Also, remember my comments about how the natural gas storage is almost maxed out. When that happens, the only Nat Gas sales will be from the active pipelines. Great weekend to all.

Geez, this must be "Be Kind to spreadtrader Week".

Somebody else tried to start a newsletter at this site...I don't think it worked out too well, but thank you for the thought. Even though I may be a lawyer by training.....I like people to like me. Newsletter writers remind me of Fridays.....that's the day I take out the garbage.

Don Harrold tends to have a shorter term time horizon than I do; and he does that pretty well. Personally, I try not to pick tops and bottoms for individual stocks or futures because I don't do it very well, but everyone is tempted to do it; and I always do it when trading commodity spreads. The difficulty in picking market extremes is that often there is no reference point from which the chartist can find support or resistance.

So I went to a continuous weekly futures chart for NG and observed that from the 1999 low the price has just retraced 62% from the 2006 high. This should be major support. The other thing that is noteworthy is that in 7 of the last 8 years NG has closed the year higher than it ended September (the other year was flat). So seasonally, the fall and early winter are generally good for natural gas prices. On the other hand, crude oil tends to decline until year end.

Momentum is negative, but the oscillators are oversold for UNG. The price could frog around for awhile here; and an important point to consider is the extent to which natural gas may be held hostage by the price of oil. (To some extent that's why I suggested a spread between natural gas and oil in another post. You may want to look at the futures spread chart for these two that I post tomorrow at about noon at www.pitnews.com.)

On a P&F chart, a print at 32.00 would be a new sell signal for UNG. So if you insist on bottom fishing here, you should make the market behave or exit. I'd leg into this a third at a time. Hope that helps.

This is a difficult question, especially if you "don't know jack about options"....but I'll try.

I don't recommend using options other than as a substitute for protective stops UNLESS you understand how implied volatility works AND have a way to determine whether particular options are "cheap" or "expensive" in that context. I don't have access to option implied volatility tables for stocks like I do for commodity futures. Here's a URL for a free option pricing calculator (I have no clue how to use it or how well it works).

http://shareme.com/details/option-pricing-calculator.html

Fortunately, natural gas is a commodity, so I can get an idea of option implied volatility from the commodity option implied volatility tables published by Moore Research. Presently, option IV for natural gas is in the moderate range, so I conclude that today, UNG options are fairly priced (I could be wrong). Typically, I buy only "cheap" options. I buy or spread fairly priced options; and I try only to sell (but sometimes I spread) "expensive" options.

If I buy options, I time the trade like any other and I ONLY buy at-the-money (ATM) or near-the-money (NTM) options. NTM means no more than 2 strikes away from the price of the underlying instrument (stock or commodity). The reason for this is that ATM options have a greater probability of profit at expiration than out-of-the-money options. So for UNG I would only look to buy 34, 35, or 36 calls.

January is the earliest expiration I would use. But since you expect to hold these calls until late November or longer, you may want to go to April. Generally, price is most sensitive to the time value of options in the last 45-60 days, meaning that the option will tend to lose time value more quickly the closer you get to expiration. Price will be less sensitive to time decay the farther out you go on the calendar. So April would be my choice for options that I want to hold for several months.

April 35 calls appear to have more liquidity, so I'd go with those at 5.00. (I've posted elsewhere [http://www.stockgumshoe.com/2008/08/fake-names-for-options-trading-a-vacation-special.html#comments] about position size, so I won't go into that here, but be aware of the issue.)

Personally, I’d wait a bit to see whether and how long the market may consolidate here. If the price moves up some, you can always adjust the strike you intend to purchase. But if you insist on buying now, here’s how I’d plan to manage the trade. First, I’d close the trade if the price closes at 32.00 or lower because it means that support is not holding. Second, I’d risk 3.00 of the 5.00 premium (close the trade if the bid/ask spread hits 2.00). Third, since the seasonal tendency carries roughly through November, I’d seriously consider exiting the trade by then and carefully re-evaluate the chart at that time.

Alternatively (and perhaps simpler), buy UNG, risk it to a close at 32.00 and don’t worry about time decay or implied volatility, because I also find that once purchased, it is very difficult to know when best to sell options. They are tricky.

Hope this helps.

farley, I take it you are still bearish on all commodities and not just natural gas.
What do you think of the following inverse commodity related funds?

DUG, SMN, AGA, BOM, DEE

I think DEE is a good way to play the recession.

I just read a forecast that predicts Natural Gas Oil Rig numbers will decline 40% over the next year due to the oversupply of gas. The analyst is Bearish for 2010 EPS Forecast. ASAFP may be onto something.

This just out from our Nat gas folks: "Currently, our 2009 U.S. natural gas model suggests that “theoretical” summer-ending gas storage will surge to an impossible 4.25 Tcf". While we may have a Winter Weather bounce, they are suggesting taking profits if that bounce happens. Gas prices must fall, wells will be shut in, and rig counts will be whacked. They are holding on to their $6.75 and will reduce it when they get better visibility on winter weather. Picture below still showing lower tops and lower bottoms.

http://stockcharts.com/def/servlet/SC.pnf?chart=$NATGAS,PLUBDANRBO[PA][D][F1!3!.125!!2!20]&pref=G

EIA reported N/G injection of 62 BCF. Consensus was 45. Hard times ahead unless we have a really cold winter. Hurricanes shut in 2 BCF/day so the above could have been worse.

As poet Susan Cooper scribed in her poem, (or was it Destry)?, “The Shortest Day:”
“So the shortest day came and the year died.
And everywhere down the centuries of snow, white, world
came people, singing, dancing, to drive the dark away.
They lighted candles in the winter tress;
They hung their homes with evergreens;
They burned beseeching fires all night long
To keep the year alive. . . .”

This just out from RJ&A:
Given our $5/Mcf Gas Forecast, We are Downgrading Numerous E&P Stocks.
As a result of our uber-bearish 2009 outlook on natural gas, we are taking a far more conservative
investment stance regarding our E&P ratings, particularly that of gas-weighted companies. Our ratings
changes are summarized on page 5. We emphasize that this downgrade is based on our expectation of
severe pressure on gas prices in 2009 and not our overall stance on structural, long-term company
fundamentals. While essentially all of these stocks have already pulled back sharply from mid-year highs,
we still believe there is significant downside risk in the next three to six months if our gas call rings true.

The Energy Information Administration (EIA) reported a withdrawal of 47 Bcf, well below the consensus estimate of a 178-179 Bcf withdrawal and our forecasted range of 55-65 Bcf. Working gas in storage now totals 2,840 Bcf, and the y/y storage deficit has been replaced with a surplus of 31 Bcf.

If we take out hurricane-ralated production shut-ins, we have an 8 BCF/day excess. Add that to the crapy demand for natural gas due to the recession, and prices will stay low. And to think ST started this back in July! Nice job your honor!

There is no doubt that natural gas has huge advantages over other fuels and will see a much higher price at some point. But, exactly when? I don't want to own it through several lean months or lean years.

We've been told that the new bunch in Washington is much smarter than the old bunch. Let's see if they promote natural gas or throw money down rat holes of unproven technology like they did with ethanol. When, I say "promote", I mean encouraging use for things like generating electricity and not some tax scheme for producers.

Warning: Expect ALL natural gas and oil companies to report lower reserves starting this week. The SEC requires all O&G companies to use the December 31 pricing for their reserves. The hardest hit will be ones with Long-Lived reserves, high operating cost structure, and high proved undeveloped reserves. Highest cost oil: KOG, LGCY, & PSE. Highest Nat Gas: ENP, SGY, & EVEP.

Do not let your profits turn to mush. Tight stops in this ugly market. Nimble only in this area. I have avoided it as you all know.

The EIA reported we would end gas withdrawal season with 1.9 Tcf of gas in storage. This indicates further downside risk to the N/G players. If domestic storage hits the peak in the summer as expected, the market should shut in about 500 - 750 Bcf - not good for prices.

Just got back from the conference. The head O & G analyst says N/g is going to the low $2.00's. Oil should be firming up soon as OPEC has cut production. More when I unpack.

I think that the proposed excise tax on Gulf of Mexico production could put additional downward pressure on demand if and when it is implemented. Your thoughts, farley?

How many years into the future is HK's production hedged?

this is taken from one of the stansberry letters. Their take on Natural gas is that it really can't go much lower than the current $3.50, and we should consider buiying UNG. Farley's source says low $2's. Here is the Stansberry take. If the link doesn't work, I can do a copy/paste.

http://www.dailywealth.com/archive/2009/Mar/2009_Mar_23.asp?printdoc=print

It may come up with a print bar, so just cancel the print.

Pessimistic or not, I've tried to keep this thread up to date. Gas wells are being shut in, rig count is falling like a rock, the economy is using less gas, winter is over and we have historic high N/G in storage, and the list goes on and on. Sure, long term, two years, we will have to start drilling again. With the lag time, N/G will go higher. I'll change my N/G to Sub $3.00 if it makes y'all feel better. Look at a chart for N/G prices for 1997 - 99 & 2000 - 02 and you'll find gas weighted stocks bottom very close to the low in gas prices. We have farther to go on the downside. ST was dead on to start this thread. Don't be stupid with your money allocated to N/G.

Article on how LNG will impact NG for a while http://www.marketwatch.com/news/story/Supply-liquefied-natural-gas-poised/story.aspx?guid={BF5B672F-DC12-4B6C-96CC-CC19F6B4EEBE}

fyi: I have a small position in UNG and GAZ. I also champion compressed natural gas as a truck and locomotive fuel for the transportation industry (maybe marine too, but not aircraft). No other hydrocarbon fuel has as low a CO2 to BTU output as natural gas (methane)...source doe.gov.

Reports out of Texas and La., say that wells are being capped/shut down waiting on higher prices. Plenty of NG for everyday use and storage. Don't know about the future but Colonial Pipeline recently got governmental okay from Georgia to add a new pipeline from La. through Ga. to furture service the East coast , I believe it's 6000 miles of pipeline. Planning for the future.