Since establishing a bottom on 8/8, November natural gas futures have advanced H/L 60 cents trading yesterday at their highest levels since 7/18. Much of this is due to hotter than normal weather across the Midwest in recent weeks continuing to spur above average air-condition usage, boosting demand for natural gas used to generate this electricity. This late summer heat wave has pushed futures higher by 7% just in the last two weeks. A 38.2% Fibonacci retracement is complete and I am shifting from a bull to a bear thinking if an interim top was not made today we are very close. A further advance is likely to meet resistance from the near record production levels of natural gas, the advent of the slack demand shoulder season and expectations on inventory injections in the preceding weeks.
Support has held at the 8 day MA (orange line) the last two days but I expect that be temporary as a trade back to previous support approximately 15 cents from current trade is my first objective. A break below that level should get November moving towards $3.50.
In recent sessions I’ve advised bullish trade to offset, however, after yesterday’s action I think traders can turn the other way and play bearish trades.
- Buy an at the money November put - $3.75 strike currently at $1200. 40 days until expiration and 44% delta.
- Get short November futures and sell an at the money put option against your short futures 1:1. Look to make a about half the underlying move with a 12 cent /$1200 cushion.
- Buy February 14’ futures/Sell November 13’ futures. Currently February carries a 24 cent premium. Risk 4 cents ($400) looking to make 8-10 cents ($800-1,000).
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