When discussing our bearish winter outlook for natural gas back in the fall, The Schork Reporthad some fun comparing the commodity against the Yugo GV (the Communist answer to the Ford Pinto).
Our expressed point was that natural gas and the Yugo GV were both cheap — for obvious reasons, i.e., 1. there was a glut of natural gas on the market and 2. the Yugo, as Time Magazine described it, “…exuded the feeling it was assembled at gunpoint.”
In other words, there was no value in owning either natural gas or a Communist-manufactured car.
To wit, despite one of the coldest winters on record, Henry Hub gas futures peaked in early January and then spent the rest of the winter giving up one third of its value. However, since late March, the natural gas complex has been the strongest performer in the S&P GSCI, up 24½ percent since the start of the quarter.
Thanks to Deepwater Horizon, concern in the market now appears to be growing that our central planners in Washington will legislate increased demand for gas. As such, Wall Street is apparently allocating capital accordingly.
Yesterday the spot Henry Hub futures contract on the Nymex (rolling contract) settled inside what our friend Dennis Gartman dubs the box, i.e., the 50/62% retracement in between 4.824 and 5.100 (note, we use a ratio scale). This is a logical area to expect resistance.
Thus, the bears better put up a defense here or they should run for the hills.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.