Above average temperatures are expected for this summer in the U.S., which could lead to surging demand for electricity and natural gas. But with the price of natural gas jumping more than 60 percent in recent months, Jim Cramer worried that the rally could run out of fuel.
"Much of this is already baked into the price of the commodity," the "Mad Money" host said.
Looking at charts is often helpful to determine the trajectory of a given stock or commodity. That is why Cramer turned to Carley Garner, a technician and commodities expert who is the co-founder of DeCarley Trading and a colleague at RealMoney.com.
When Garner reviewed the charts for natural gas, she was skeptical that the move could last. Natural gas tends to be hostage to weather patterns. Last winter was an unseasonably warm winder in the Mid-West and East coast, which meant people needed less fuel for heat.
Lately, those losses have been reversed thanks to a historically hot and dry summer.
"Natural gas has displaced coal as the nation's No. 1 utility fuel, so whenever we use more power, the price tends to go. Right now the natural gas market is literally feeling the summer heat," Cramer said.
But the charts told a different story, which lead Garner to believe that the commodity could soon peak. In her view, the market has overestimated the demand for natural gas for cooling, and has underestimated the power of seasonal tendencies.
The natural gas seasonal chart from Moore Research Center is a chart that collects the last 15 years of data, and rather than showing prices, depicts probabilities by comparing the time of year and ranking the odds of the natural gas market being at a relative annual high or low.
Garner found that natural gas prices tend to firm up in the spring to anticipate a warm summer. However, it usually doesn't last. In most years, natural gas prices tend to head back down in mid-to-late June.
The daily chart for natural gas also depicted natural gas roaring higher as part of an expanding trading range pattern. Garner said that this pattern suggested that it will run into a ceiling of resistance at $2.83.
If the commodity does peak soon and pulls back, Garner said it could fall to a range of $2.09 to $2.18. While it is possible that it could fall below $2, Garner doesn't think that is likely.
Ultimately, the charts and seasonal patterns all indicated to Garner that natural gas is about to get slammed until the fall.
"Given her track record with commodities, it might be a good idea to take some profits in the natural gas producers. Nobody ever got hurt taking a profit," Cramer said.