Natural Gas on greased skids

Oct 27th, 2010 – Comment

Hello Lou, Natural Gas prices seem to go lower every day. Is this a good time to buy HNU. Will it be going up to the $5.00 level in the next year or so? Thanks Puzant   Hi Puzant, The Horizon BetaPro NYMEX Natural Gas Bull Plus ETF( HNU TSX) is a leveraged investment designed […]


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Hello Lou,

Natural Gas prices seem to go lower every day. Is this a good time to buy
HNU. Will it be going up to the $5.00 level in the next year or so?

Thanks

Puzant

 

Hi Puzant,

The Horizon BetaPro NYMEX Natural Gas Bull Plus ETF( HNU TSX) is a leveraged investment designed to generate a return that is two times  the daily movement of the NYMEX contract. HNU and other leveraged ETFs are sophisticated products that require a good grounding in how they work. Lets consult the charts to see what kind of picture they are painting.

The three year chart tells the entire story. HNU has been shredding value since the summer of 2008 and it continues to find lower lows. The units have met resistance along the 50 day moving average at every turn. The best way to describe this chart is to label it toxic. Without a shadow of a doubt there has been no rational reason to own these units if your intention was to create wealth.

The six month chart is a reaffirmation of the downtrend in place. Every attempt to move higher has been met by aggressive selling. At some point in economic history the price of natural gas will recover but that point isn’t currently upon us.

If you want to take a ride on HNU you need a number of factors to come into play. A barking cold winter that gets gas flowing to the burner tips in the major cities of the U.S. especially New York, Chicago, Boston, Washington would help. It would also help if you had some major storms hit the Gulf of Mexico to disrupt the production platforms that feed natural gas into the continental gathering system. With less than five weeks left in the traditional hurricane season your storm had better show up soon.

The price of HNU is getting a bit of a lift from an oversold situation but I am not sure thats enough to justify fighting this long term downtrend. Cold is gold for natural gas, hot is not.

Happy Capitalism!

 

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