• Choppy early trading as traders shift into the December contract for natural gas.
• I anticipate seasonal strength driven by winter demand, viewing any pullbacks as value-buying opportunities within a cyclical uptrend.

The natural gas market has been a little bit choppy and noisy during the early part of the Thursday session as we continue to see traders roll over into the December contract. The December contract, of course, will offer pretty significant demand and perhaps even pricing pressures to the upside due to the fact that colder temperatures will drive up overall demand in places like Boston, New York, Philadelphia, and Columbus.
 

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Cyclical Momentum

In this environment, every year I see an opportunity to start buying natural gas and simply hang on to it as we roll through the next couple of contracts. That being said, the massive gap that kicked off the rollover into December was about 45 cents, so a little bit of a pullback does make a certain amount of sense. We saw this during the previous month of November, as far as the futures contract is concerned, where we pulled back and then bounced.

I do think there is a certain amount of lackluster performance that will get bought into based on the idea of value. The $4 level is above, and it will offer a certain amount of psychological resistance as well as possibly option barriers. But I think it's only a matter of time before we break out to the upside. Natural gas, of course, does tend to have that cyclical trade, so for the next three months, I won’t short the market regardless. I don’t care what the setup is; I just do not short the market this time of year.

Now, once we roll into spring, I short it and I don’t buy it. It’s a pretty straightforward way to trade natural gas, and although the reality is it can do pretty much anything, overall, it’s a very cyclical market, and if you abide by those guardrails, it tends to help. We are entering that high season, so I fully anticipate that any pullback gets bought into with the idea of offering value.

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