NG - Freedom from Fear
Lately, natural gas has gone up in value a bit despite declining in value almost continuously for the past six months. This has people wondering whether or not there is further upside.
It is important to remember that most of the natural gas volume is from institutional traders of whatever type, but retail does have a part in the market as well.
As soon as a few months ago, things were different from the retail trader/investor point of view. People were much more eager to go long on natural gas because of how far it had fallen. It certainly looked as if it was ripe for a harsh oversold bounce.
However, in late Feb-early March, the only bounce that ever happened at all was preceded by a steep drop and ended with a weekend bull trap, which was not exactly the easiest move to take advantage of.
This was followed by a slower decline that ate away at ETF values in particular. Not only that, but contract contango has made it difficult to go long on natural gas.
Since then, it has consolidated in some sort of roughly defined range only to sharply rise in the past week.
My theory is that anyone who actually dared to go long on natural gas, particularly during the Jan-Feb era where it still had room to fall, got to see firsthand how natural gas refused to bounce. The retail sentiment is now much more hopeless and focused on taking whatever profit there is.
Memories of the weekend trap in March have now contributed to retail taking money off the table instead. They are now afraid to go long because of how sad the price action has been. It doesn't look like anyone truly believes there will be a real bounce (like they did a few months ago)
The actual point
A lot of that was mostly just anecdotal evidence and focus on retail traders, who are just a tiny portion of the market.
The reason to not go long here is, at its core, fear of natural gas just going down as it has done very consistently for the past six months. It is probably at least a somewhat good idea to not pay attention to that fear and instead trade based on technicals and fundamental stuff.
The fact is that there has not been a real Fibonacci retracement since December. As you can see on the chart, even the Feb-March bounce did not reach even the lowest target. This is not just something that happens!
The most recent & comparable example I could find is from July '08 to Sept '09, where natural gas did manage to decline about 82% without ever hitting a Fibonacci target. You can somewhat justify this move by saying that it basically had gone up in a straight line in the first half of 2008.
The end result, though, was that it literally doubled in value (from $2.5) in the span of a month.
Even the 2022 market was different from 2008. In 2008, it had essentially been straight up then straight down. 2022's market was much more choppy and even set a late June low at $5.5, far below the $8 to $9 peaks it had set. It then consolidated for four months near the $6 mark.
For anything that doesn't go bankrupt, or anything where the fundamentals are truly, completely changed, there will basically always be some sort of bounce or rebalancing that takes place after a big move. It might take some time, but that is just how it is in the markets.
We have not had this bounce. Right now, there is a lot of fear to go around and it seems like no one believes that natural gas will actually reach any sort of high point again.
Maybe natural gas will, in fact, go lower, but the upside afterwards only grows the longer it is put off.
It is important to remember that most of the natural gas volume is from institutional traders of whatever type, but retail does have a part in the market as well.
As soon as a few months ago, things were different from the retail trader/investor point of view. People were much more eager to go long on natural gas because of how far it had fallen. It certainly looked as if it was ripe for a harsh oversold bounce.
However, in late Feb-early March, the only bounce that ever happened at all was preceded by a steep drop and ended with a weekend bull trap, which was not exactly the easiest move to take advantage of.
This was followed by a slower decline that ate away at ETF values in particular. Not only that, but contract contango has made it difficult to go long on natural gas.
Since then, it has consolidated in some sort of roughly defined range only to sharply rise in the past week.
My theory is that anyone who actually dared to go long on natural gas, particularly during the Jan-Feb era where it still had room to fall, got to see firsthand how natural gas refused to bounce. The retail sentiment is now much more hopeless and focused on taking whatever profit there is.
Memories of the weekend trap in March have now contributed to retail taking money off the table instead. They are now afraid to go long because of how sad the price action has been. It doesn't look like anyone truly believes there will be a real bounce (like they did a few months ago)
The actual point
A lot of that was mostly just anecdotal evidence and focus on retail traders, who are just a tiny portion of the market.
The reason to not go long here is, at its core, fear of natural gas just going down as it has done very consistently for the past six months. It is probably at least a somewhat good idea to not pay attention to that fear and instead trade based on technicals and fundamental stuff.
The fact is that there has not been a real Fibonacci retracement since December. As you can see on the chart, even the Feb-March bounce did not reach even the lowest target. This is not just something that happens!
The most recent & comparable example I could find is from July '08 to Sept '09, where natural gas did manage to decline about 82% without ever hitting a Fibonacci target. You can somewhat justify this move by saying that it basically had gone up in a straight line in the first half of 2008.
The end result, though, was that it literally doubled in value (from $2.5) in the span of a month.
Even the 2022 market was different from 2008. In 2008, it had essentially been straight up then straight down. 2022's market was much more choppy and even set a late June low at $5.5, far below the $8 to $9 peaks it had set. It then consolidated for four months near the $6 mark.
For anything that doesn't go bankrupt, or anything where the fundamentals are truly, completely changed, there will basically always be some sort of bounce or rebalancing that takes place after a big move. It might take some time, but that is just how it is in the markets.
We have not had this bounce. Right now, there is a lot of fear to go around and it seems like no one believes that natural gas will actually reach any sort of high point again.
Maybe natural gas will, in fact, go lower, but the upside afterwards only grows the longer it is put off.
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