Erratic Behavior and False Breakouts: The Widow Maker Is Ready to Strike

The widow maker is at it again.

Natural gas is known to commodity traders as the “widow maker,” because of how difficult it is to trade.

The price is often erratic. It doesn’t seem to conform to any of the standard rules of technical analysis. It often trades irrationally – rallying when the fundamentals argue for a decline, and vice versa.

As a result, most folks lose money trying to trade natural gas. Hence, the widow maker.

And yet, some of us just can’t help ourselves.

We saunter into the trading pits determined to solve the natural gas puzzle. Because, when you get it right, the payoff can be quite large.

For example, the last time we looked at natural gas was back in July. The widow maker was trading at about $2.60. The price appeared to be breaking out of a four-month-long trading range. And I argued that natural gas could hit $5 by the end of the year.

Shortly afterward, as if to prove its reputation for erratic behavior, the price of natural gas fell back inside its trading range. The breakout was false.

Natural gas has spent the past several weeks chopping back and forth – frustrating bulls and bears alike.

Last week, though, the price of natural gas quietly exploded higher. I write “quietly” because it seems as though no one has noticed. The price spiked by more than 20%. But, none of the financial television talking heads have said anything about it yet.

Here’s the updated chart…

The widow maker has clearly broken out of its consolidation pattern (lower dotted blue lines).

Natural gas is trading at its highest price since mid-January. The next real resistance level is all the way up at $5. Granted, it’s not going to be a straight shot higher. This is the widow maker after all.

But, after being stuck in a trading range for seven months, there’s a lot of energy built up in this chart.

It sure looks like that energy will result in a strong rally to me.

So, I’m sticking to my year-end target of $5 for natural gas.

Best regards and good trading,

Jeff Clark

Are you trading natural gas?

Let us know your thoughts – and any questions you have – at [email protected].