Pro: Trading the Natural Gas Rally
It's the rally you probably haven't heard about.
The price of natural gas has spiked to its highest level since 2011, advancing 17 percent year-to-date, as supplies declined for 14 consecutive weeks.
(Read More: Energy Boom Ripples Through US Economy)
The month of March, which typically brings rising daily temperatures going into the spring season, can be characterized as colder than average. This cold weather has increased demand for natural gas, prompting prices to surpass the psychologically critical $4.0 level.
The market technically broke out of a wedge in the first week of March, marginally grinding higher each day. However, the big move didn't come until March 14, when the market gained more than 3.5 percent on the report that supplies in the week ending March 8 fell to 1.938 trillion cubic feet, its lowest level in almost two years. Since then, May natural gas futures continued to make a higher low each day — the trend now in its fourteenth day.
(Interactive Map: Where US Energy Is Produced)
Consumption has increased dramatically, because natural gas holds a cost advantage over coal, and power plants have ramped up usage this year. Also, hedge funds have continually increased net-long positions, and in the week ending March 19, they were increased by 31 percent.
(Read More: CNBC Explains 'Hedge Funds')
With the forecast calling for snow and temperatures reaching below 30 degrees Fahrenheit in some parts of the Midwest this week, price action above $4.0 will be bullish, with a close above last Thursday's $4.05 high signaling that the momentum will continue. A close below $3.89 or $3.88 could signal consolidation back down to $3.79. However, only a failure to stay above the .382 retracement of this major move beginning on February 15, which falls at $3.75, will signal that the bears have taken over.
Read on for Nat Gas Rally Out of Fuel?