The Bull And Bear Case For Natural Gas: Is It Time To Buy The Dip In This Commodity ETF?

Supply chain shortages resulting from the pandemic, instigated rallies in a variety of commodities, including natural gas. Just as those concerns were abating, the war in Ukraine reinvigorated the rally in these markets and sent many commodities well above 2021 highs.

Prices in many commodities have been on a sharp decline despite the ongoing war.

With natural gas futures plunging for the fifth day in a row, and trading lower in the last six of seven, it is time to take a technical look at the United States Natural Gas Fund, LP UNG.

What Is It? The United States Natural Gas Fund, LP is an exchange-traded security that is designed to track in percentage terms the movements of natural gas prices.

UNG issues shares that may be purchased and sold on the NYSE Arca. The investment objective of UNG is for the daily changes in percentage terms of its shares' NAV to reflect the daily changes in percentage terms of the price of natural gas delivered at the Henry Hub, Louisiana, as measured by the daily changes in the Benchmark Futures Contract, less UNG's expenses.

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UNG's Major Bottom: Due to the structure of the ETF, the major highs and lows will not align perfectly.

Natural gas futures along with UNG made a major bottom in December 2020 at $8.22.

As the world took major strides to emerge from the pandemic chill, resources such as natural gas saw an increase in demand. The lack of demand coupled with decreased supply set the stage for a major rally.

UNG's Minor Top And Retreat: The lack of supply to restart the economies of the world did not abate until November 2021, when the ETF peaked at $22.10. With production ramping up and eventually exceeding demand, prices plummeted. Over the next three months, the ETF was nearly cut in half when it bottomed last December at $11.53 and rallied to end the year at $12.49.

War In Ukraine, Nordic Stream Stoppages: As a result of these two factors, there was frenzied trading in UNG from February 2022 until August.

After appearing to be putting another major bottom on the monthly charts at the $18.30 area, the ETF finally peaked in August at $34.50. After failing to maintain over $30 in September, the ETF swooned to $17.41 in October and attempted another rebound.

When the rally made a double top on the monthly charts just under $25, it was time for another leg lower.

UNG Moving Forward: UNG is having the worst performance since mid-September through late October.

Over that period of time, the issue went from $31.45 to $17.82 on a closing basis.

UNG made a new nine-month low in Monday’s session at $17.07. From a bullish perspective, the issue has returned to an area of major monthly support and may begin a base to mount another vicious rally.

The bear case is there will be an upcoming lack of demand for natural gas as a result of a possible global recession. In that case, the issue may be heading back to levels where it was before the war in Ukraine began.

Those levels from March are $15.66 and $13.67 for February. The yearly low was made in January at $12.09.
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