Thankfully, prices at the local gas pump have come down from last year.
Of course, as consumers were less strained at the pumps, they likely started paying less attention to the markets behind oil and natural gas.
That would be a mistake.
In case you haven’t noticed, the United States Natural Gas Fund, LP (UNG) shot up a whopping 24% in the past five trading days.
So, the first thing I did was start pouring through my data and technicals to answer a very important question: is this going to keep going, or is it going to fall?
So, I dug into my Excel spreadsheets and put on my detective’s hat to try to get to the bottom of his 24% rally.
And boy oh boy, slap me silly and call me Columbo, because I cracked the case.
Take a gander at this little chart…
This is the average performance of UNG following a one-week rally of 20% or more at any point over the past five years. There have been 13 such rallies.
What we want to turn our attention to is the blue line – that’s the aggregate of all trades placed on UNG in the 30-day stretches following those rallies.
It looks like the black-diamond ski slopes I was on the other weekend.
Hell, even the winning trades – the best-case scenario – are only finishing at even money after 30 days. And they’re clearly not having much impact on the overall numbers.
For those of you who prefer a more numerical approach to the visual, take a peek at the raw data.
Over a 30-day stretch following a rally of 20% or more, the average UNG trade returned negative 14.8%.
In a five-year span, there are 1,260 days of trading. If we’re only looking at 13 instances of a one-week, 20%-or-more rally in UNG, that’s a very small percentage of those trading days.
Suffice it to say, we can call these types of rallies outliers.
Now, with outliers, all we can do is determine if their ensuing movements are consistent, and in this case, as you can see, they certainly are.
That’s where trades come into play.
So, referring back to that table, UNG is averaging a 14.8% drop 30 days after these one-week rallies.
The last time this happened, for what it’s worth, is circled in the below chart – back on December 12, 2022.
Would you look at that? Came up and tested the 50-day moving average (MA50), tested the 20-day moving average (MA20), and rolled right over.
As you can see, the current rally has it threatening the MA20 again, and it’s going to roll over just like last time.
I will 100% be adding more UNG puts to my portfolio to capitalize on this once the clock strikes midnight.
I’m targeting the $7 mark. That’s a 20% decline from where it is at this very moment.
Ironically, this is far from the only thing I’m paying attention to in the energy and energy-related space.
Now, I can’t stress this enough: there isn’t anyone I trust more when it comes to macroeconomic trends than Garrett Baldwin.
And he has been plugged in (no pun intended) to the energy sector and all of the fallout from the war in Ukraine.
But what got me most excited was the thoroughness of his research in finding the American companies set to benefit most from the $4-trillion vacuum created by Russia’s aggression.
He’s got a list of seven companies right now he thinks are poised to rake in cash due to this shift. You can find out more about those here.
This will not be the last we talk about the UNG movement and overall volatility in energy, I can promise you that.
I feel like Jack Bauer with his 24-hour clock, only mine’s set to 30 days – and the countdown’s started.
You’re going to want to check back in with me daily to make sure you don’t miss the moment we strike.
