The U.S. Natural Gas Fund (NYSEArca: UNG), which tracks near-month natural gas futures contracts traded on the New York Mercantile Exchange, has tumbled 16.5% in the past 90 days, but improving technicals indicate the volatile fund could deliver some near-term upside.
Some warmer-than-expected weather in some parts of the U.S. could also help UNG. Commodity Weather Group forecasts higher-than-normal temperatures in the Midwest through Sept. 5. [Natural Gas ETFs Extend Rally After Supply Data]
Technical analyst Chris Kimble noted that UNG has found support in a price area that was previously resistance created a downtrend line. Kimble pointed out that on Tuesday, UNG made an “engulfing bullish pattern.”
Others see an encouraging technical of natural gas futures. “Looking at the daily chart for October Natural Gas, we notice what appears to be a “V” shaped bottom forming on the chart, which corresponds with the 14-day RSI moving into oversold territory. Prices are now trading above the 20-day moving average and momentum has turned positive with a current reading of 53.016. Resistance for the October contract is found at the 200-day moving average currently near the 3.825 level, with support found at the August 8th low of 3.154,” according to OptionsExpress.
As for fundamentals, hurricane season is approaching. If major storm does hit the Gulf of Mexico, that could lead to some supply disruption, although the shale boom has made natural gas prices less vulnerable offshore supply interruptions. [Natural Gas ETF Bounces Back to Two-Week High]
UNG has not traded above its 200-day moving average since mid-June. The fund has not traded above its 50-day line since May, though it is less than 1% away from reclaim that moving average.
Investors looking for an equity-based play on natural gas producers can consider the First Trust ISE-Revere Natural Gas Index Fund (NYSEArca: FCG), which holds oil and natural gas exploration and production companies. FCG has traded in a tight range over the past few weeks, indicating it needs to move above the $17.80 area encourage fresh buying.
U.S. Natural Gas Fund
ETF Trends editorial team contributed to this post.