The United States Natural Gas Fund ETF (UNG) rose more than 10% on Wednesday morning as unexpected cold and limited supplies drove natural gas prices higher. Weather forecasters anticipate much colder-than-average temperatures for the southeastern and midwestern United States, which could drive demand for natural gas sharply higher this winter.
At the same time, natural gas stockpiles are at their lowest levels since 2005. The inadequate supply could further boost natural gas prices until producers can increase their output to a sufficient level to meet the rising demand. The long-term outlook remains bearish for the commodity, however, given record production levels in 2018 and 2019.
From a technical standpoint, the United States Natural Gas Fund ETF experienced a bearish double top back in late 2016, which sent shares from about $40.00 to less than $20.00. The fund continued to trade at these levels until breaking out this month to retest those prior highs. The relative strength index (RSI) appears overbought with a reading of 87.75, but the moving average convergence divergence (MACD) remains in a bullish uptrend. These indicators suggest that there could be a brief pullback at trendline resistance, but the long-term trend could be higher.
Traders should watch for some consolidation at around $40.00 before any future move higher. The new trading range to watch is between $27.00 and $39.00, where there could be significant volatility over the coming weeks as prices start to normalize.
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.