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Now, some 21 years later, we are seeing prices
approaching this area. Once this happens and Natural Gas rigs begin to
shut down due to decreased profit margins, we should see the next up
move in prices when demand reappears. This demand could come in
multiple forms:
The United States is slated to become the world's largest
producer and exporter
The housing market rebound will create a demand for more Natural Gas
to be used for heating due to the low cost Currently, there is a
threat of war when Iran attempts to shut down the Strait of Hormuz.
This is not a question of if, it is a question of when
The United States' infrastructure is completed to transport Natural
Gas to shipping ports more economically and timely The cold weather in
the Northeast United States winter season The above points will all
have an impact on Natural Gas prices. When the conflict of the Strait
of Hormuz occurs, we will see a price spike in Crude Oil temporarily,
but none the less a spike and this will result in the world looking
for alternative fuels again. It is a shame it takes situations like
this to promote a search for alternative fuels, but that is how it is.
For an investor to participate in this market, I would
recommend using an Exchange Traded Fund (ETF) and not the Futures
market. The Natural Gas market could stay at relatively low levels for
an unknown period. Since the Natural Gas Futures contract expires
every month and the distant months are not very liquid, this could
lead to a higher cost to invest using Futures contracts.
The ETF some traders would recommend is the United States
Natural Gas Fund (UNG). When using an ETF, the investor is not faced
with contract expirations or rollovers as they would be faced with in
the Futures markets. If an investor finds that they are profiting from
their investment in UNG at a later date, perhaps they could use some
of the proceeds to invest in some Futures contracts to increase their
returns using margin.
UNG trades on the New York Stock Exchange Arca. Unlike some
ETFs, UNG is made up of purely Natural Gas Futures contracts, Forward
contracts of Physicals and Swap contracts of Physicals. This allows
the ETF to track the Physical Commodity rather than companies that
produce and process the Commodity. Their objective is to track the
price of Natural Gas with minimal management expenses.Since 2008,
after the energy price spike, the Commodity Futures Trading Commission
(CFTC) began to enforce position limits on the UNG to limit the number
of contracts UNG could buy. The CFTC felt that there was a possibility
that UNG and other ETFs were part of the cause of the 2007 energy
price spike. To avoid these position limits, UNG has begun using
Physical Forward and Swap contracts which do not expire so frequently.
This will allow UNG to hold positions longer without the frequent
rollovers they incurred in the past. UNG still uses Futures contracts,
but this is not the only investment vehicle they use now. Without
these frequent rollovers, perhaps UNG will more naturally track the
underlying Commodity of Natural Gas.
Using a Commodity ETF in your portfolio is the beginning of
true diversification. Just because you have different asset class
stocks in your portfolio does not protect you well enough due to the
nature of how most stocks rise and fall in tandem. Holding and being
educated in different investment asset classes is how a professional
investor diversifies their portfolio
Remember that this type of investment is not meant to be an
overnight short-term get rich strategy. This could take a while, but
as with most good things, it could be worth the wait. The smaller time
frame is where we can plan and execute our trades. We should also
identify the trend and supply and demand zones on this chart. Those
levels will define where we will enter into the trade and where we
will exit if we are wrong stop loss . If you notice, You may not
identify the target on the smaller time frame. If you are trading in
the impulse of the trend and in the direction of the larger time
frame, you are likely to break supply and demand on the smaller time
chart and should target the zones on the larger one to maximize my
profits.
There are several indexes that are based on the size of the
shares contained within them. The Nifty and Sensex contain large cap
companies. Capitalization, abbreviated as cap, is a measure of the
number of shares of stock a company has issued, multiplied by the
share price. There are certain levels that determine whether a company
is large cap, mid cap, or small cap. The large cap companies are
usually multinational corporations that while based in India, do much
of their sales outside of the country. They are sensitive to changes
in world economic health.
Commodities, on the other hand, are a different creature.
Unlike a stock, which nobody has to have, Commodities are a true
supply/demand type of market - meaning we must have Commodities to
survive every day. Imagine life without energy products for
transportation or heating our homes, food products for both human
consumption and the livestock that we later consume, textile products
for clothing and metals products for construction or jewelry
gentlemen, Valentine's Day is close at hand, . Pricing shares of a
stock has nothing to do with production cost, but a Commodity price is
heavily influenced by how much it will cost to produce and store that
Commodity product for future delivery. Weather and other news factors
need to be taking into consideration when trying to trade natural gas.
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