I love finding stealth rallies in the financial markets. These under-the-radar moves higher are ignored by the financial media and therefore by most investors.
Stealth rallies occur for any number of reasons. Primarily, these types of upward moves happen in commodities or stocks that have been beaten down for so long that the public simply loses interest in them.
A stealth rally starts by attracting the attention of only the most die-hard followers. These early investors quietly pocket huge gains while the rest of the investment community is chasing the latest hot stocks or futures.
Right now, a stealth rally is taking place in a commodity that has not been in the headlines for a while. Once a darling of the financial media, this commodity has been beaten down so severely it is rarely mentioned in the daily financial press. After being hailed as the savior of the United States' energy future, this commodity quickly became over-produced. It may have succeeded in revitalizing U.S. energy, but its price continued to plunge lower as the years passed.
In case you haven't guessed it, I am referencing natural gas. The widespread use of fracking created an oversupply of the commodity, resulting in a price plunge.
Recently, however, things have changed. Natural gas is in the middle of a monster upward rally and it's not too late to jump on board.
The National Oceanic and Atmospheric Administration (NOAA) reports cooling degree day (CDD) data for every seven-day period by state. From that data, they construct a populated-weighted national total.
CDDs are the difference between the daily temperature mean (high temperature plus low temperature divided by two) and 65°F. If the temperature mean is above 65°F, we subtract 65 from the mean.
The National Oceanic and Atmospheric Administration's (NOAA) Climate Predict Center (CPC) is forecasting a continuation of a major heat wave this week ending July 30th. Nearly every single state is predicted to experience higher than normal temperatures. In some states, such as Washington and Oregon, cooling degree days (CDDs) are forecast to be more than double their normal levels. However, in the two states that burn the most natural gas at power plants, Texas and Florida, the heightened temperatures will be more muted.
Based on NOAA's state-by-state cooling degree day forecast, weighted by natural gas-weighted electricity production, I estimate that CDDs will be 30% higher than normal and 12% higher than in the same week last year.
Natural gas futures prices have risen almost 80-percent from their lows in March, with much of the gain occurring over the past month. Based on my analysis of the Commitments of Traders (COT) reports, issued by the Commodity Futures Trading Commission (CFTC), the vast majority of the buying that propelled prices came from short speculators who covered (bought) to limit further losses. Since early March, they had purchased more than 100,000 futures and options contracts (see graph below). Continue reading "Natural Gas Prices Surging With Dog Days Of Summer Ahead"→