Natural gas prices had a roller coaster ride in the final two months of 2018 as concerns over historically low storage stockpiles, a cold early-winter outlook and short covering drove the commodity to four-year highs in November. However, warmer temperatures in December paired with increased production levels extinguished gains and sent prices capitulating into year end.
Recent weather forecasts that predict a warmer start to February caused Henry Hub Natural Gas Futures for February (NG=F) to slump another 7.2% Monday. "Weekend weather model guidance moved in about as bearish a direction as possible, with incredible warming in the medium-range as cold in the short-term quickly gets kicked out and replaced by ridging across the East," said a weather analyst at Bespoke Weather, per CNBC.
Natural gas prices opened lower again Tuesday but staged an intraday reversal as fears about a polar vortex over the Midwest put a flame under prices once again. Natural gas futures now sit at vital technical support, suggesting that the price has already factored in many of the unfavorable fundamentals.
VelocityShares 3x Long Natural Gas ETN (UGAZ)
Created in 2012, the VelocityShares 3x Long Natural Gas ETN (UGAZ) aims to return three times the daily performance of the S&P GSCI Natural Gas Index by holding front-month natural gas futures contracts. The ETN's leverage and deep liquidity make it a suitable instrument for traders who want an aggressive bet on the energy commodity rising. UGAZ, with assets under management (AUM) of $237.62 million, has a year-to-date (YTD) return of 14.34% as of Jan 30. 2019. The ETF's high expense ratio of 1.65% is manageable for short holding periods.
UGAZ failed to retain its sizable November gains, with the price falling to new 2018 lows in December. After staging a moderate bounce in early 2019, the note has since retraced to test this year's low at $36.61, which now acts as a key support level. Traders who take a long position here should consider booking initial profits on a move up to the $51 level – an area where the price may find resistance from the bottom trendline of a previous trading range. A stop-loss order could sit below the January swing low.
ProShares Ultra Bloomberg Natural Gas ETF (BOIL)
The ProShares Ultra Bloomberg Natural Gas ETF (BOIL), with net assets of $12.09 million, seeks to provide two times the daily return of the Bloomberg Natural Gas Subindex. It does this by investing in natural gas futures contracts and/or swaps. The fund's moderate average spread of 0.24% and over $7 million in average daily dollar volume make it a viable tactical trading tool for natural gas bulls seeking short-term exposure. As of Jan. 30, 2019, BOIL has a management fee of 1.22% and is up 7.59% for the year.
BOIL's share price has oscillated within an 11-point range in January after tumbling 57% in December. The ETF opened lower Tuesday to test the Jan. 3 low before closing up 0.83% for the day. Those who buy at the current level should place a take-profit order near $30.50, where the price may encounter resistance from a horizontal line that connects several 2018 swing highs. Protect trading capital by closing open trades if the price dips beneath the 2019 YTD low at $23.99.
United States Natural Gas ETF (UNG)
Launched in 2007, the United States Natural Gas ETF (UNG) seeks to reflect daily changes in near-month natural gas futures contracts that make it an uncomplicated product for traders who want straightforward exposure to gas prices. The fund dominates the space in terms of size and liquidity, with $291.86 million in AUM and average daily volume of nearly 5 million shares. UNG has returned just over 9% YTD and charges a reasonable 0.70% management fee as of Jan. 30, 2019.
Like the other natural gas funds mentioned, UNG’s chart shows a large rise followed by an even larger fall during the fourth quarter before stabilizing this month. Traders should look for an entry point between $24.50 and $26, where the price finds support an uptrend line dating back to mid-July and the 200-day simple moving average (SMA). Think about placing a stop slightly beneath the early January low and exiting with a profit on rallies to the January swing high near $30.