The Next Commodity Super Cycle: Capitalizing on Natural Gas

“Bottoms in the investment world don’t end with four-year lows; they end with 10- or 15-year lows.” Jim Rogers’ insight lays the foundation for our exploration into Natural Gas investments at a time when prices are pushing historical lows.

His statement not only underscores the importance of a long-term perspective but also sets the stage for how to trade commodity super-cycles, and is particularly relevant for Natural Gas in an economy inching towards cleaner energy sources.

Timing, Market Cycles, and the Natural Gas Opportunity

The crux of commodities investing lies in the ability to read and act on market cycles. For Natural Gas, the present scenario of prices nearing multi-decade lows signals the onset of a super-cycle recovery phase.

This cycle typically starts with a gradual upswing from oversupply or low demand, stabilizes, and then progresses into a growth phase. These kinds of “commodity super-cycles” offer substantial returns for the investor who’s patient enough to wait for the signs of change.

Technical Indicators: Navigating Through RSI and CCI

Technical indicators, specifically the Relative Strength Index (RSI) and the Commodity Channel Index (CCI), have recently pointed to oversold conditions in the Natural Gas market since the beginning of November, setting the stage for a rebound. Natural Gas’ emergence from oversold territory indicates a market steadying for gradual growth, presenting a promising moment for entry.

Strategic Entry: Leveraging Rick Rule’s Insight

Rick Rule, a veteran in natural resources investment, describes Natural Gas as “stupidly cheap,” highlighting its significant undervaluation. His viewpoint adds enthusiasm into our strategy of cautious market entry.

By adopting a measured approach, investing a portion of our intended funds – be it half or a third – we allow flexibility to adjust and add to our position. This tactic is invaluable in a volatile market like Natural Gas, enabling investors to average down if prices dip further, thus optimizing the cost basis without overcommitting prematurely.

The Long-term Investment Horizon

Our strategy embraces a long-term view, focusing on the pivotal role of Natural Gas in the global energy matrix and its structural demand. This perspective anticipates fluctuations but remains anchored in the commodity’s intrinsic value and its broad contribution to a cleaner energy future.

By maintaining the discipline to average down in the future, investors can capitalize on lower prices, enhancing their position as the market corrects.

Actionable Investment Strategies

To actualize the insights and market dynamics discussed, investors have two primary pathways: going long on the Natural Gas ETF (UNG) for direct market exposure or investing in pure-play companies like EQT Corp, one of the largest domestic natural gas plays available.

UNG hand offers a straightforward reflection of Natural Gas price movements, for those looking for a hands-off investment. On the other hand, companies like EQT provide a focused entry into the sector, allowing investors to benefit from investments the company has made into the Natural Gas sector in previous years.

In the coming weeks we will revisit the approach and talk about adding options to the Natural Gas trade to add for some short-term trading opportunities as well.

In conclusion, the current landscape for Natural Gas, marked by historical lows and reliable technical indicators pointing towards a rebound, presents a fertile ground for strategic investment.

Whether through ETFs or stocks of leading Natural Gas companies, investors have the opportunity to engage with the market from a position of informed strength. Backed by the wisdom of seasoned investors and an understanding of market cycles, this approach allows for leveraging Natural Gas’ potential in the emerging commodity super-cycle, aligning with the global shift towards cleaner energy solutions.

Regards,

Brad Hoppmann
Analyst, Market Minute