Weather patterns in the United States have been throwing a wrench into the natural gas world, as temperatures have struggled to find a comfortable level. This year started off rather warm, only to see temperatures jostle back in forth, making it almost impossible to NG to maintain consistency. While the volatility has been nice for active traders looking to turn a profit, the unpredictable weather and price movements have made trading something of a headache this year [for more natural gas news and analysis subscribe to our free newsletter].
UNG on the Rocks
Of all of the commodities on the market, NG is perhaps the most susceptible to inclement weather, as its supply and demand is highly influences by the use of heating and cooling devices around the nation. As such, this fossil fuel tends to act up whenever there is the slightest disruption in temperature patterns. Most investors use the United States Natural Gas Fund (UNG) to take advantage of price movements in the underlying commodity, as this is one of the most popular trading instruments on the market. UNG has more than $1.1 billion in assets and trades more than nine million shares each day.
So far in 2013, UNG has had a wild ride, making it a thorn in the paw of traders looking for some semblance of a consistent pattern. The first two trading days of the year saw UNG fall more than 5% only to jump by 1.7% the following day. From January 4 to January 9, this ETF slid 4.6% but has jumped 8.8% since. After all is said and done, this fund has managed to scrape up gains of 1% for the month, though the road to positive return has been a rocky one [see also The Rise and Demise of UNG].
For those looking for trading tips on UNG, there area couple of factors to consider. For starters, always use a limit order (and that goes for all ETFs) as a market order can leave you on the losing end of a bid-ask spread. More specifically to UNG, keep an eye on the 10-day forecast as NG typically reacts to the weather that is coming, not what is already here. And finally, any trader of this fund should know that every Thursday brings a make-or-break inventory report from the EIA. When inventory comes in lower than expected, it means demand has been strong and UNG usually jumps. But when stockpiles are too high and demand is weak, this fund takes a hit.
Disclosure: No positions at time of writing.