Natural gas has made a bottom. This bottom is likely a much longer term bottom. Price may double and even eventually triple. This move up coming in natural gas is partly fundamental and partly technical. It will be discussed below.
Natural gas is trading at a major discount to oil. Oil continues to hover around the $100 a barrel level. As oil has surged over the last few months, natural gas has fallen. This divergence in price movement should reverse and oil continues to pull back and natural gas bounces.
In addition, the government is near passing a major natural gas incentive bill. This is being championed by T. Boone Pickens. It would give major incentives to trucking companies that switch over to natural gas vehicles as well as car buyers. As long as oil stays higher in the $100 range, natural gas at this price is an obvious choice. Many companies are already switching over to natural gas.
On a technical level, the United States Natural Gas Fund, LP (NYSE:UNG) has put in a bottom. This was seen last week when there was a proprietary time count followed by a reversal candle. This reversal candle was nearly engulfing. The ETF that tracks natural has retested the lows but never broke. Today, the UNG is trading at $7.82, +0.13 (+1.69%). This upswing is coming in a weak market where the SPDR S&P 500 ETF (NYSE:SPY) is trading at $119.07, -2.92 (-2.39%). This relative strength also confirms a bottom.
The natural gas is a true hidden gem right now as it trades at lows. Watch for upside to continue regardless of market direction.
Related: United States Oil Fund LP (ETF) (NYSE:USO), Devon Energy Corporation (NYSE:DVN), Chesapeake Energy Corporation (NYSE:CHK), Exxon Mobil Corporation (NYSE:XOM).
Disclosure: Gareth Soloway owns United States Natural Gas Fund, LP.