December Natural Gas is up 2.3 cents at $5.305 this morning as I write. The enclosed chart shows that after four sharply lower days in a row, natural gas managed a mediocre bounce yesterday that is bouncing a little further today. When markets go to new multi-week highs then abruptly fall to new multi-weekly lows within several days, you can expect to see a market that will get very choppy and begin some sort of sideways consolidation for a while. The indicators have suggested that to me for the past couple of weeks. Even when prices broke out to the upside last week, my indicators weren’t confirming any reason to get excited and with this break down, the indicators are still not impressed. This is just a lot of price volatility that is probably going nowhere but sideways overall. We will be patient for the day when the indicators get more excited. So, for now we will stay with the current positions.

Followers of this letter should be long one December Natural Gas from $5.721 and short one December Natural Gas ($5.50 strike) call option from 60 cents, and long one December Natural Gas ($5.30 strike) put option from 40.2 cents and short one December Natural Gas ($4.80 strike) put option from 19.2 cents. Option expiration is in 26 days. I also continue to recommend buying the December 2012 Natural Gas at $7.25 GTC.

Oct. 28, 2009
David Hall