Natural Gas, Crude and Energy

In recent months we have observed commodities rising in anticipation of another FED quantitative easing program. Then, last week, the FED officially announced the QE 0.6 ($trillion) program and commodities took off again. The commodity bull market continues.

Last week we watched Crude oil hit a two year high, along with Agriculture and Basic Metals, and Gold hit another all time high. When we track commodities we use the five sectors provided by the Goldman Sachs Commodity Index: energy, precious metals, agricultural, basic metals and livestock. The energy sector is our focus today. The GJX is composed of W. Texas Crude, Brent Crude, Heating Oil, Gas Oil, RBOB Gasoline and Natural Gas. We chart the GJX index, W. Texas Crude and Natural Gas. As you can observe, in the chart below, GJX is in a long term uptrend.

Also Crude oil is in a long term uptrend.

Historically, Crude and Natural Gas track each other fairly well and have had several coincident peaks: 1997, 2001, 2005/6 and 2008. This is illustrated in the chart below. Also note, in recent years NatGas has gone through periods of creating consolidating bottoms before it joins Crude in its advance. This is probably a result of the NatGas supply factor.

 

In September 2009 we identified the low in NatGas around $2.62. This was followed by a sharp rally to $6.08 by January 2010. After that this commodity corrected for several months, right into its seasonal low price period: September/October. The green arrows on the chart below display this seasonal pattern, and we have added the long term OEW count.

Taking a look at the weekly chart of the past few years. We observe the Major B wave high at $13.69 in 2008, and then the collapse to $2.62, completing the Primary B wave in 2009. NatGas then started a rising Primary C wave with the first uptrend off that low. After an initial spurt to $6.08 it has spent most of 2010 in the consolidation base building process. The recent low at $3.48 may have ended it. With Crude making new two year highs recently NatGas looks ready to start moving higher as well. In fact, it just confirmed a medium term uptrend. Should NG continue its pattern we could see $13.00-$15.00 levels in the next couple of years.

Best to your trading!