Within about 2 months we have seen the price of natural gas, as measured by the exchange traded fund UNG, move from around the mid $7 range to the mid $9 range. This short term burst equates to a run-up of over 25%. While observers have made observations and recommendations that the price could pull even higher as we approach winter, I am of the opinion that in the near term (weeks rather than months) we are likely to see some form of a pull back.
The speed of this increase is going to be difficult to keep pushing higher. What catalyst at this point is going to goose the stock further? Technically, the commodity price has broken out of the trading range it has been stuck in for while, which is a positive. Yet, the relative strength measure has reached heights that are generally seen as overbought. I agree with this reading. The velocity of the current commodity’s climb has been very strong. At this point, I would look for the price to trend downward or at minimum trade flat for a while. Either way this is good news for investors. This provides time and another opportunity for you to get in, if you believe in the bullish argument.
Right now investors are going to be looking forward to how cold winter might be. If a cold winter is foreseen, especially in the eastern part of the country, you can expect natural gas prices to push higher. Also, if economic growth domestically and internationally keeps pace or is believed to elevate beyond current levels, then prices should find another catalyst to increase.
At this point, don’t panic. We’re likely to see at least a small time where a pullback or consolidation takes place in the natural gas market.