Friday

Cooking with Gas & Playing with Fire

Post a Comment April 24, 2009 – 4:00 pm |   | Permalink |  Print This Post |

Dow is now 8090 (high of 8100), Dax closed up 2.3% and has broken through last week’s high of 4680. This is NOT a good sign for shorters. All the technical traders were calling for a sell - our indicators included. Good thing we protected ourselves by lowering our stops yesterday at our entry level. We look to short at 4720. We are calling for a UP-DOWN morphology. 

Natural Gas continues falling, now down to 3320 for the May contract. Note that it will be expiring on the 28th April 2008. We opened a long position at $2/point at 3320 and another 2000 ETC Natural Gas at 0.66. The May contract is a gamble and based on the believe that whilst everyone was heading for the door 2 trading days prior to expiration and the contract at all time low, shorters will need to close out their positions Monday. And there will be no new shorts next week, so existing shorters who need to close out will have to BUY at whatever price. We expect a significant reversal next week (or even later tonight). So, place your bets - heads or tails?

Addition:

Natural Gas closed at 3245, down 10% from 3600 two weeks ago when we first spotted this opportunity(we think its an opportunity). For those who are new, check out our post two weeks ago. On the contrary, crude oil was up from $50.50 to almost $53 in one night as one would expect when markets rally. The loss of correlation between gas and oil is not uncommonly seen (or between any two correlating pairs) during the expiry of a contract. It suggests (in our view) gross manipulation in attempt to squeeze the longs. Our positions are based on our rule that nothing moves in one direction (admittedly looking at the charts, one could be saying this anywhere along its decline from $14!). The fact that crude oil has recovered from its all time low, and short term divergence of gas and oil evident last night suggests to us that this is manipulation. Question (and our concern) is: will it continue its death spiral and expire at its low? Is that possible considering shorters will need to exit their positions? We intend to take this position to its expiry - this kamikaze mission is not for the faint hearted. Those who are more risk adverse but wish to ride the recovery of Natural Gas (technical indicators suggests a secular trend change in NG - you do not need to be an expert to make that call, just look at the historical price chart of Natural Gas here), may have exposure through Natural Gas ETF. For more about ETFs and how they work, simply sign up for a FREE 30 day subscription here:

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