If the Weather Outside Is Frightful, Buy Nat Gas: Pro

Engineer testing natural gas pipeline.
Lowell Georgia | Getty Images
Engineer testing natural gas pipeline.

It gets cold in Chicago. I'm convinced that many people live their lives without feeling the painful bight of wind coming off the lake on a zero degree January morning. Fortunately, I was able feel that weather earlier this morning, and it served as reminder that the value of natural gas is not going away.

The story is the same in the U.K., where temperatures have dropped, and natural gas demand has picked up. Temperatures and markets both have a tendency towards mean reversion, and it appears that natural gas is in this process.

February natural gas futures have bounced off the January 10 lows, and appear to be headed for further gains. If the contract can consolidate above $3.50 for a couple of days, then $4.10 will become my upside objective.

The bearish argument for natural gas has been a domestic supply glut coupled with warmer temperatures. It is my belief that these factors have been fully priced in -- and thus the next significant move should be to the upside.

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