Natural gas has been the tale of two trends. One up, one down.
Trending up has been the available supply of the clean-burning fuel. Also trending up are the number of potential uses for the newly abundant resource.
Trending down… has been the price of natural gas.
In 2006, natural gas futures contracts traded for $28. Today, we’re under $3.
But this multi-year downtrend in natural gas prices is showing signs of a turn.
The first clues of natural gas prices turning higher came at the beginning of this year. Over the first few months of 2012 a “positive divergence” emerged.
This happened when the Relative Strength Index (RSI) – a common indicator of when markets are “overbought” and “oversold” – began pointing higher.
At the same time, natural gas prices continued drifting lower. This dual occurrence is called “positive divergence” and indicates the possibility of a significant turn in the prevailing trend. It’s a bullish signal for natural gas prices.
In April, natural gas bottomed at $2.09 and is now 37% higher.
The latest clue suggesting the downtrend in natural gas is over came two weeks ago when the 50-day moving average of prices crossed over the 200-day average. This is another bullish signal.
These two averages have only crossed twice since natural gas began its descent in 2006, so this is something to watch closely.
It may be several more years before practically available demand is sufficient to catch up with abundant supply. That said, $2 natural gas may well be a thing of the past as industry finds more uses for fracked gas.
If you haven’t done so already read the Survive & Prosper issue on “Natural Gas vs. Gasoline – Which would you pick to fill your car?”