Compound returns with NG can be huge.
And provides a trade that is completely separate from regular markets.
Last year I wrote an article “Trading natural gas in 2023.” and continued to update it over the year. 2022 was a crazy year, with NG hitting $10, which was completely unsustainable. The last remains of those ridiculous prices was finally washed out in November, 2023. Going forward, there will likely continue to be excellent trades but with pricing more in line with fundamentals. The rough breakeven price for producers is $3, so with the current price around 2.20, there’s significant upside potential which will be ultimately based on production and storage capacity.
The beauty of trading NG is that it can make large swings over a range of 20% or more. Compounding returns of even 10% can add up in a hurry, with just 7 10.5% trades needed to yield a 100% return on initial capital. Here’s a look at UNG (non-leveraged ETF) for last year.
From April through October it went up and down over a 20% range. Trading leveraged ETFs (BOIL/KOLD or HNU/HND) covers a 50% range that can be captured up and down. The big drop in November was the future contracts finally dropping from an inflated 3.80 to an oversold 2.10. In January, NG made another ridiculously exaggerated move to 3.39 (Feb. contract), based on cold weather that only lasted 2 weeks. Looking at the March contract below, you can see the price only touched 2.80.
If the weather continues to be warmer than average, NG could fall to 2.00 and lower, but I’m doubtful that will happen. If it does, it simply sets up a better long trade with HNU or BOIL.
The chart looks similar to UNG, but the ‘tiny’ move on Friday, from the low of 5.96 to close 6.46 was +8.4%. A range of 6.00 to 8.00 is 34%. That’s a big opportunity to go after. In the past, I’ve had trouble trading HNU/BOIL profitably. I’ve had much better success with HND/KOLD. This year, I want to focus on getting the trades ‘right’ in both directions.
I’ve yet to find anyone who trades NG well, consistently. Following technical indicators rarely works without consideration of the fundamentals. The frequent large gap opens, often in an unexpected direction, can get one underwater, which can then have one struggling for weeks to get back in profit. On Seeking Alpha, there is only one person, I know of, that ‘consistently’ makes large profits trading NG. You can follow Greg’s trades in the comments of “Trading Your Plan Not Others”. I strongly suggest you simply follow the comments for information and don’t follow him into trades. He has a tendency to get down 50% or more with a large position. You can read a summary of last year’s events in “Trading natural gas in 2023.”
I recently wrote “TQQQ/HQU - Leverage can be a useful tool.” It shows the incredible potential returns with just a few trades, checking the charts once a week. Now that the markets are getting stretched, I have turned my focus to HNU while I wait for a re-entry into HQU. Friday was an ideal opportunity. Here’s a look at UNG.
As you can see, it looked to have bottomed on Tuesday, Jan. 23 and rallied in the afternoon. Wednesday it was up more, opened even on Thursday, then slid lower. Every Thursday at 10:30, EIA releases its Weekly Natural Gas Storage Report. Usually, NG will gap one direction and move the other in seconds, and often moves back again a half hour or more later. Basically, you need to be ready and waiting and act quickly, or simply stay on the sidelines and wait for an entry some other time.
You can also see that the price dropped sharply on Friday at 10:15. If you were holding, you needed to have had a stop in place. Once it held and you read some nonsense explanation for the move, then you can buy with some confidence, with either a limit or stop buy. By the end of the day, you’re up about 8% with HNU or BOIL and 3% with UNG. With most ETFs, that’s a comfortable margin for holding overnight. That’s not the case with NG, especially over the weekend. There are often gap openings of 8% or more.
At one o’clock, Greg posted, “I bought 10K BOIL at 22.97.” It had held above 22.85 since noon. I had bought some HNU at 6.05 average. Regardless of whether you are able to buy 10k shares or only 10 shares, the strategy should remain the same. I will continue to post updates so you can follow our trades and devise a strategy for yourself.
In the meantime, to help you formulate a preliminary strategy, here are Greg’s trades since December.
As you can see, once Greg sinks his teeth into a trade, he is relentless. He believes in the ‘necessity’ of building a large position as the price falls. That is the generally accepted and promoted strategy. I completely disagree and have repeatedly suggested buying on the way up, instead of down. Each purchase for Greg is upwards of $300k, which should give you some comfort in making a large purchase. I recommend making a full purchase and then be ready to sell if it goes against you. I would also suggest that your ‘full’ purchase be an amount that you’re willing to lose 10% of, because of the frequent surprise gap openings.
Buying more as it falls 35% from your initial buy is not easy to do, and I believe it is completely unnecessary and unproductive. Note that Greg began buying in 2k allotments as the price dropped. His initial conviction was high and he bought in 3k allotments. He switched to 2k when he had $1.5M in the trade and was down $176k (-17.6%). He also did essentially time the bottom with his final buy. He has proven repeatedly that his timing is good and that he can trade for consistent and large profits, but once he gets focused on building a large position, he consistently gets deep underwater. After his final 2k buy at 67.25 on Jan. 9, his average price was 87.58. That’s 30.2% above his low buy! He needs a 30% move to get back to breakeven. That’s not a position I ever want to be in, let alone with a large position. Greg’s was just over $2.5M.
I completely agree that the rally in NG was ridiculous and unjustified, but such moves happen all the time. As such, go with it, instead of fighting it. BOIL went up 51% from his Dec. 21 buy to the high on Jan. 9. That day was crazy! NG kept going up and up and up, hitting 3.39 before finally snapping lower. When you stretch a rubber band or blow up a balloon, you know they will eventually break, and you can watch in amazement at the extreme stretch before they do break. Watching NG that day was exactly the same. Buying that ‘snap’ with a large position was the best strategy by far. Unfortunately, not everyone can watch and wait for the bubble to burst.
On Friday, Jan. 12, NG rallied again, pushing KOLD down. If you had bought Jan. 9 and sold the next day for +19%, then bought and sold Jan. 11 for 8% (and you could have traded both directions for 8% each), then bought and sold Jan. 12 for 4% (and maybe to BOIL for 5-6%), then you could have comfortably bought KOLD late Friday at 72.80. It was a good gamble since the fundamentals were completely in favour of KOLD and the downtrend would be broken on a gap higher open. Sure, it was still risky, so don’t bet the farm, but certainly bet all your trade gains for the week, at least.
Monday was a holiday and it did gap higher on Tuesday, Jan. 16, held roughly flat for 2 days and gapped higher on Jan.18. That was a great point to buy for conservative traders. Buying 2 weeks ‘late’, still had you in at a better price than Greg’s average price of 87.58). Plus, you hopefully had many compounded trade gains, allowing you to comfortably take a significantly larger position. Here’s the chart again for easy reference.
So, decide if you would have bought HNU or BOIL on Friday and then play along until you’re ready to do it with real money. Good luck to all of us!
Update to Fri. Feb. 2: The cautious decision last Friday was to take the 8% gain with HNU or BOIL. If you bought UNG, then you likely didn’t sell for 3-4%.
If you did hold, then the ‘proper’ decision was to sell Monday and wait to re-buy. Clearly, it’s a lot more effort than TQQQ, which is up 23.4% in 4 weeks with no trades and 78.9% in 3 months. Its trend is still up, but nothing goes up forever and most things don’t drop forever. Eventually, QQQ will hit a top and UNG will hit a bottom. I try to write articles early enough to give you time to think about it and get ready for the trade. BOIL and HNU might provide similar returns in the next 4 weeks and 3 months, or KOLD might give the returns over the next several weeks. It’s important to not try to predict what might happen, simply make decisions based on what is happening.
Update to Fri. Feb. 9: On Monday, there was good reason to buy BOIL and likely hold overnight with a 3% cushion. On Tuesday, you needed to sell for a 2-3% loss. If you didn’t sell, for whatever reason, then you rode those shares down 17.1%.
It’s difficult to sell when you’re ‘sure’ it’s a good price, and you may have held till 2 o’clock. That drop removed all uncertainty. Sell and wait for the next setup. You could also have bought KOLD and bagged 17% profit on the drop. Holding either over the weekend is a risk. NG was down to 1.81, so there’s no rush to get long. Holding for a further drop might also be considered greedy. A cold weather forecast could have it gapping up much higher. Patience is best.
Look back to 2020, with everything down due to covid. Oil hit -$40/bbl on one overnight contract roll. There’s no rush to get long NG now.
Update to Fri. Feb. 16: NG seemed cheap at 1.81 and, as warned, it got even cheaper, hitting 1.57. Here’s a look at Greg continuing to buy BOIL as it fell lower. Honestly, there is simply no logical reason to do this. At noon on Thursday, Feb. 15, it gapped lower at 13.47, moved up immediately then held around 13.60. NOW, it made sense to buy for a possible rally. Greg still believes NG will hit 1.50. I’m doubtful.
Why hold your buys from early February as the price fell when you believe that NG will continue to fall from 1.80 to 1.50? It makes no sense. Why hold even if you absolutely believe that the price of NG won’t fall any lower? The trend is down, respect that. Feb. 13 and 14 had moments of bullishness. The gap lower and rally at noon on Feb. 15 has all the hallmarks of a final push lower.
If there was no rally after the bearish report at 10:30, then I wouldn’t have been watching to buy. The gap lower and reversal at noon caught my attention and got me watching. Buying at 13.60 with a stop sell at 13.40 (-1.5%) made a lot of sense. The spike lower at 2:30 gave 2 points for a rising trendline, which was touched and held, with a rally in the final 10 minutes. Those were all bullish factors to justify holding overnight.
An extra thought, to provide confidence in buying holding BOIL now, is that Greg consistently gets deep underwater in his trades and then nearly always sells for a profit. Here’s his record for last year when he bought large positions over a period of time.
BOIL, Dec.28'22 - Mar.20'23, max. draw -59.5%, -$1.089M, sold -$1.06M, -58.2%
KOLD, May 8 - May 31, max. draw -19.3%, -$328k, sold +$290k, +16.4%
KOLD, June 15 - Sep.8, max. draw -25.1%, -$430.8k, sold +$25.9k, +1.5%
KOLD, Sep.22 - Nov.20, max. draw -27.6%, -$423k, sold +$189k, +12.3%
KOLD, Dec.22 - Jan.26'24, max. draw -65.5%, -$655k, sold +$621k, +24.5%
BOIL, Feb.1'24 - , max. draw -29.8%, -$343k, sold ??, ??
Despite going a million dollars in the hole to start the year, he still managed a profit of over $370k for the year. His BOIL buy late 2022 and hold through March was simply a really bad decision. NG was 4.60 when he first bought and he wrote, “I bought 10K BOIL at 18.50, it's possible NG could drop to 4, but since I have no idea when it will flip higher, I'm going to start buying the dip!”
I was convinced NG would fall to 3, at least. It fell to 1.96 by Feb. 22. On Feb. 1 he bought at 6.84, 6.36 and 5.70 for a $1.6M position with NG falling from 2.80 to 2.53. His last buy was Feb. 17 at 5.20, for an average price of 10.75, and it continued down to 4.34 on Feb. 21, -16.3% from his last buy, -$1.088M, -59.5%, and -76.5% from his first buy. That’s not buying the dip!
Amazingly BOIL then rallied 83.6% to 7.97 high on Fri. Mar. 3. I said the move was ridiculous, but was afraid to buy a large KOLD position. Greg felt NG would go higher and didn’t sell. BOIL gapped lower on Mon. Mar. 6 at 6.16 (-21.6%) completely erasing Friday’s +15.6% move. Welcome to the wacky world of NG!
Fast forward to the present, Greg's comment, Thurs. Feb. 15:
The COVID year was more an issue of the time where nobody knew what would happen with society so NG and oil plummeted on what was seen as much lower demand, to no demand. The 1.61 low was a major downside support which failed today, so the next support level is 1.50. The all time 2020 low was actually 1.38 for about a minute. But the situation today is much worse that any previous I can remember. You have everything working against the bulls, production at all time highs, demand at record lows, weather biblically warmer than average, largest oil production in history increasing supply via associated gas, and lets not forget the Freeport outage which is curbing export demand for LNG.
Have I missed anything? Maybe I will think of something else, but there's nothing to be bullish about other than the fact that NG is about as low as it can go!
But if things continue the way they are, I could see NG putting in a new all time low before truly bottoming. I didn't expect it to get this bad, but the bearish fundamentals and weather just keep coming. When it breaks nobody know for sure!
I agree with everything he says, which is why I have been very cautious buying BOIL. Eventually, there will be an 80% rally or better, so be patient and catch it.
Update to holiday Mon. Feb. 19: NGH24 (March contract) opened lower today and hit 1.522. It might be back up to open tomorrow, but if not, best to have a clear strategy in mind.
A look back to early February might be useful. That’s when Greg started his position, and instead of selling for breakeven or a small gain on Feb. 6, he bought more and continued to buy more as it fell. That’s not a strategy I recommend. With NG near 1.50, it’s difficult to imagine another steady 2 week fall from current levels, but with NG, anything is possible.
BOIL could easily gap 5-10% lower tomorrow, so I would watch to trade it, much like Feb. 6. An early rally is likely, and I would watch to sell when it stalls, then put in a stop buy higher. If it falls from a gap lower open, then I’d sell and put a stop buy just above the early high. The longer term downtrend line might turn into support, but if the current uptrend support line is broken, you simply want out of the trade at the best price you can get and wait for another buy setup like last Thursday-Friday. It’s also wise to remember that BOIL could have powered up higher on Feb. 6 from the early low and continued higher for the past 2 weeks. That’s a possibility for tomorrow as well.
For everyone on the sidelines, you’ve had a great view of past events with no early punches taken. It can’t go down forever, so wait for your opportunity to land your own knock out punch.
It might also be helpful to have a perspective on KOLD since it started up in November. As I’ve said before, it was amazing that the futures pricing for NG had remained so high, for so long, which made be tentative with the KOLD trade, especially after the crazy run up in December and early January. Paying attention to the trend as well as the fundamentals, should have allowed me to hang on till last week’s high. By any measure, holding KOLD over the weekend now is a bad bet. Greg has a history of being lucky though, so betting against him often goes against you.
At least you don’t have $1.15M in BOIL, sitting -$293k, -25.4% at Friday’s close. Stay patient this week and good luck!
Update to Fri. Feb. 23: Wow! What a week! BOIL gapped lower on Tuesday but held above Thursday’s low. That broke the Thursday-Friday uptrend, but with it holding all day, it was a reasonable bet to hold. Watching after hours was super beneficial as NG took off higher based on CHK saying in their earnings report that they were going to cut production. You could have bought BOIL after hours quickly and then held overnight. It gapped up 25% on Wednesday. I thought it might continue a bit higher on Thursday, but it fell back.
Catching the 10% rally on Thursday on top of 25% selling on Wednesday, and likely buying and selling for a trade on the day, has you well up from buying on Tuesday. Buying on Friday was obviously tempting, but holding as it fell during the day was a risky decision. The rally on Thursday after a bearish report with a jump in storage to 22.3% above the 5 year average was surprising. It could gap higher or lower on Monday and there’s simply no way of knowing. I chose to stay on the sidelines. Greg sold his BOIL at 17.10 for a loss of $125k (-10.9%) and bought KOLD. (Remember he bought KOLD on Feb. 15 as a hedge for his BOIL position.) He thinks NG will go lower given the current fundamentals. The argument is sound, but I wouldn’t want to take the risk. I’d rather wait for the eventual BOIL trade.
This article, “UNG: Not The Way To Profit From Natural Gas” provides a lot of useful information that is useful to know and keep in mind while trading BOIL. It recommends buying producers, which could also be profitable, but it won’t come close to the compounding return potential from trading BOIL and KOLD.
Update to Fri. Mar. 15: Greg finally closed his KOLD trade on Friday, saying, “I sold KOLD at 148 for a 302k profit (+14.6%), I still believe NG will go lower but not taking any chances considering the rally yesterday on nothing.” At the March 5 low of 106.00, his trade was -$380k, -17.9%. That’s not a swing I like to sit through.
The move up in NG after Thursday’s bearish report made no sense, but such is often the case with NG. The current excess storage is a whopping 37.1%, up from 30.9% last week and 26.5% the week before. That’s a very rapid increase, and I don’t know if storage has ever been this much above the 5 year average.
Production has dropped and, if cuts are maintained, the excess storage will eventually return to the 5 year average, but future prices for NG remain elevated, so there’s no clear trade. Front month prices will gradually increase, but since BOIL and KOLD hold future months (currently May and will roll into July), they’re likely to continue to trade over a range.
The front month, April, closed Friday at 1.655 with May at 1.789 and July way up at 2.37. The roll doesn’t start till early April and will favour KOLD. Here’s a look at BOIL and KOLD over the past few weeks.
They might now be setting up to hold a 10-20% trade range. Since the fundamentals are still bearish, I will continue to remain cautious with BOIL trades. Conversely, news and bullish enthusiasm can easily spike NG higher, as was the case in February and early March, so best to be cautious with KOLD trades as well.
Update to Fri. April 19: It’s been a month since my last update
Here’s a theory for how prices can be manipulated. I have no idea if it’s true, but it makes sense to me and provides a physical way for it to happen. To gap prices higher at the open, my ‘bots’ put in high buy prices, but since my bots are really fast, most of the orders are withdrawn before being executed. I buy some, just enough to keep the ‘fire stoked’, and get other traders to join the buying. As soon as the markets open, I start unloading all the shares I actually have. To force the price ever lower, I begin naked shorting. I sell shares that I don’t have at lower and lower prices. Again, my fast bots pull most of the orders before they are executed, while the huge volume of low priced sell orders push the price lower and lower. I then sell the shorts that I did buy and take the loss, knowing that I’m going to continue pushing the price lower, selling shares that I don’t have and in fact, don’t even exist. At one point, AMC was 140% short, which is nonsensical. Many buyers, the bulls, had no intention of selling. If they hold 50 or 60% of the shares and the remaining shares are held by ‘weak hands’ that might sell, then the shorts can continue to push the price artificially lower, but at some point, they have to close their shorts. That’s the point where the share price bottoms. Sometimes, the reversal can be dramatic, for example, OUST and ROOT, which took forever to top out.
Update to Fri. May 31: It’s been over a month since my last update, which was only a quick note on my thoughts for how prices are pushed around, so basically over 2 months. The past 2 weeks, NG prices were dramatically pushed up for a week, then down the following week. We may now be on the cusp of the price moving back up.
With absolutely no understanding of the fundamentals, the one week move from Thursday, May 16 to Thursday, May 23 looks unnatural, and it was, as it is now all the way back down in a week. Yes, it’s completely ridiculous, but that’s what happens with NG. You could have nabbed 53% with BOIL in one week and 53% the next week with KOLD. You can also see a hard move up in January, which was also completely unjustified, but in winter, weather can be used as an excuse for such crazy moves.
The fundamentals are actually more bullish now than they were in April. Excess storage topped out in mid March, but held over 35% until late April. Remember, I’d never seen it above 30%, so storage was high, justifying low prices. In mid April, production dropped below 100 Bcf/day, so prices should have continued to slowly move up. Instead, they were pushed back down, making it difficult to confidently buy and hold BOIL. It also conditioned one to expect a smackdown, so the hard move up on Thursday, May 16 and the next 5 sessions was a complete surprise that made no sense. Remember that move for the next time it happens.
NG will eventually get back over $3, so with it now priced at 2.59 for July and 2.65 for September (the next contract roll for BOIL), there’s a very good setup to go long with UNG, BOIL or HNU (for Canadians). Buying on Friday risks holding into a gap lower on Monday, but that pain was felt through March and April, when it wasn’t yet known if production would be cut. Production moved up last week from 99.2 to 100.1, which is a little concerning, but excess storage is down to 26.5% and dropping about 2% per week, so it could be even or under the 5 year average in 13 weeks, the end of August.
There’s certainly potential for BOIL to fall back to 13, -19.8% from Friday’s close of 16.21, but there’s also potential for it to top 30 with NG back over $3. I bought some extra on Friday, willing to sit through a 20% drop if necessary, en route to a potential 100% gain. Saddle up for the ride if you want to try a little bronc bustin’!
Update to Fri. June 7: It was a good decision to buy BOIL on Friday, May 31 as it gapped up significantly on Monday, June 3. As the price starts to fall early, sell and be ready to re-buy. When it bottoms at 11:30, it makes sense to buy since you’re expecting it to continue up overall. When it gaps lower and falls on Tuesday, sell again and let the market makers do what they want to do. When it was nearly back to Friday’s price after 2pm on Tuesday, take the gift. You’ve had 2 trades to lock in gains and if it goes lower you can buy more. When it shot up late before the close, I even bought a bit more.
When it gapped up on Thursday, June 6, it again made sense to sell, just as it did on Monday and Thursday, May 23. In fact, the best prices are often available early, pre-open. You can watch NG and it will very often move one way then reverse. After the report, NG dropped, but there was nothing bearish about it, so be ready to re-buy all your shares.
I actually expect NG and BOIL to gap higher on Monday, but I played it safe and sold most of my BOIL and held most of Dad’s HNU, since I’m trading it less and I can’t buy and sell it until after the open. I still expect BOIL to get above 30, and expect to continue to be a bumpy ride.
Update to Fri. June 14: It was another good week for trading NG, especially Monday - Tuesday. Monday opened way up and held a firm ceiling so definitely sell, but be ready to buy it back. NG was only around $3 and on May 23 it was up to 3.16, so it could easily go higher, just not necessarily in a straight line. One also could have bought KOLD for a trade as NG fell. Late in the day was a great chance to buy back BOIL 12% cheaper than you sold a few hours earlier. The gap up on Tuesday had you ready to sell, but not selling as the price held and slowly moved up. Late in the day, I sold out completely, expecting a chance to re-buy cheaper.
BOIL gapped lower on Tuesday and moved up, so I bought, when it reversed, I sold some, but not all. I’m biased long and don’t want to miss a bigger move like I did in May. When it reached support and pushed up, buy. It opened a bit lower on Thursday and the smart decision was to sell ahead of the report and be ready to buy. It fell hard on a fairly neutral to bullish report and was back near Monday’s low. For everyone who wisely sold at the top on Tuesday and patiently waited till after the report, you were rewarded with a chance to re-buy for 13% cheaper than you sold.
Without a long bias, one would have sold for a small gain later on Thursday, then not have bought on Friday. For everyone with a long bias, NG is back to 2.88 for the July contract and 2.94 for the September contract (which is the new contract for BOIL). It could easily go lower on Monday and next week, but overall it will be going up.
The daily chart for UNG shows how difficult the trade was in March and April, as the price of NG was suppressed. Followed by an explosive move in May that was difficult to stay with the entire way for +54% with UNG and over 100% with BOIL and HNU. The pullback from May 23 to 31 was a gift to get long again, and Tuesday, June 4 was an extra opportunity. UNG may fall back to the support line, and maybe lower, but my focus is on catching the move to 26+. Production is back down from the brief rise, so fundamentals remain mostly bullish. Excess storage dropped 1.2% last week, down from 2% recently, but still going in the right direction. If NG provides another gift, make sure you take it.
Final thought, the green support trendline isn’t overly steep, and is roughly the same slope as the yellow support line in 2021. I don’t expect any craziness like in 2022, or later 2021, but I do expect an overall climb for perhaps a year or more. It all depends on the discipline of producers to limit production until storage levels are back to normal. Then, with new LNG export capacity coming online, demand could continue to push prices higher.
I told a friend over the weekend to look at buying HNU or BOIL. I hope he did as Monday gave a chance to buy at Friday's best price, and even slightly better. They rallied, fell back, then held flat all day. After hours, NG blasted higher and they were up 25% before the open. I sold out, expecting a dip, bought the dip and they're back up to the pre-open level for an extra 6%. With NG March only up to 1.78, it could easily continue higher, so I will hang on to BOIL but continue to watch for trade opportunities.
Did you hold a BOIL position over the weekend? I held a half position at 14.31. I will have to sell if it gaps down, but I simply bought the break of the downtrend. That is the risk. However, it could just be a retest of the breakout. The downtrend could act as support around 13.00. My stop sell is at 13.90 which was the breakout at the open on Friday.