By Imre Gams, Editor, Money Trends One of the periods I remember most vividly in natural gas was back in 2018. Between October 26 and November 13, natural gas went on an absolute tear, rallying almost 60%. This sudden surge in “unexpected” volatility was famous for blowing up fund manager James Cordier, who ran the commodities options trading firm OptionSellers. Losses from Mr. Cordier’s trading were estimated to be in excess of $150 million. And they cost many of his clients their entire investment portfolios. But, while fierce, this surge in natural gas in 2018 was actually quite predictable… if you knew where to look. You’ll see what I mean in today’s essay. And I’ll show you how to take advantage of a profitable trading opportunity forming in the natural gas market today… Falling for a Common Mistake Natural gas is renowned for its volatility. And yet, many natural gas traders make the same mistake… They falsely believe this market moves because of anticipated weather conditions. If traders forecast a cold winter, they believe the natural gas price will go up as a result. If traders forecast a warmer winter than usual, they believe natural gas will sell off. But there’s something these traders are missing – and it has nothing to do with weather forecasts… Like every other market, natural gas moves in accordance with the Wave Principle, or Elliott Wave Theory. Longtime Money Trends readers will know what I’m talking about… The Wave Principle is simply the visual representation of the market’s overall sense of optimism or pessimism as shown on a price chart. When investors are feeling optimistic and ebullient, prices will rise in a bull market. When investors are feeling pessimistic and fearful, prices will fall in a bear market. There may be a correlation between weather patterns and the price action of natural gas, I won’t deny that… But it’s important not to conflate this correlation with causation. That brings us back to the volatility that blew up Mr. Cording’s trading back in 2018. You see, using the Elliott Wave concepts I’ve written about in Money Trends, the surge in natural gas in 2018 was quite predictable. Let me explain… | Recommended Link | | “Lateral IPO” ALERT [Backdoor]
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A Predictable Move for Elliott Wave Traders As longtime readers know, one of the key principles of Elliott Wave Theory is that all price charts are made up of an overriding pattern. This pattern is made up of five waves in the direction of the larger trend, followed by three waves that retrace or correct the prior five-wave advance. With that in mind, let’s take a look at a weekly timeframe chart of natural gas going back to 2014… On this chart, we have a very clear impulsive five waves down (labeled 1-5). Then, a bottom formed in February of 2016. From this bottom, corrective waves A and B took shape. That left the corrective structure, but with a final wave C to go. A very common relationship between waves A and C is for them to be roughly equal in proportion. This point of equality came in at roughly 4.800 on the price chart. This is what happened next… As we can see, the natural gas market respected the guideline of wave equality. That means waves A and C were roughly equal in proportion. And that, in turn, made the upside move quite predictable for those who knew where to look. Analysts and traders later attributed this surge in volatility to concerns that the coming winter would be colder than previously anticipated. But had they used Elliott Wave Theory, they could have seen the move coming… regardless of the weather conditions. That brings us to a new opportunity unfolding in natural gas today… This New Opportunity Has 80% Potential Upside I have been tracking this opportunity for some time… And I believe it is nearly time to go long this market. Let’s take a look… On the chart above, I’ve labeled my minimum and maximum targets. My maximum target would mean potential upside of around 80%. That would come in back at those November 2018 highs of around $4.8. My minimum expected target would still involve a big move from current prices of nearly 40%. That would come in at around $3.7. Now, since those ill-fated highs in November 2018, prices have drawn out another three-wave A-B-C corrective structure to the downside. Most notable is the shape the C wave has taken… This chart pattern is known as an ending diagonal. And it’s easily recognized by its wedge-like shape. The ending diagonal is bounded by two converging trendlines (the solid blue lines). Once an ending diagonal completes, you can expect a swift reversal in price action. This reversal typically draws prices to the origin of the pattern. That would be the extreme of wave B around $3.74. But prices will often travel even further. This makes the 2018 highs a very logical and attractive secondary target. If we break above $2.942, which is key resistance for the current corrective chart pattern, I will be looking to go long this market. Regards, Imre Gams
Editor, Money Trends Like what you’re reading? Send your thoughts to feedback@andykriegertrading.com. READER MAILBAG Kind words from readers in today’s mailbag, following Andy and Imre’s conversation on the top factors that go into their trading decisions… Imre & Andy, LOVE to hear your technical and fundamental analysis of the currencies and markets overall! I really enjoy hearing your viewpoints and learning more about technical analysis. – Mike K. Andy, your thoughts and comments are very well thought out and helpful. They help me learn and understand the currency markets. I think your approach, using both macro and technical analysis, is spot on. I am in this for the long-term, so I understand that learning is necessary, especially in unique circumstances. Keep up the commentaries and macro assessments as they help tremendously in trying to profit from the trades. – Mitchell F. How has Andy and Imre’s technical and fundamental analysis helped you in your trading? Are you looking to take advantage of the natural gas opportunity Imre highlighted today? As always, write us at feedback@andykriegertrading.com. We love hearing from you. | 