“If you look at the positioning of large speculators, they are the most net short they’ve been since 2011,” Krinsky said. “If everyone is on one side of the boat leaning bearish, it doesn’t take much to trigger that next move to the upside and we are starting to see that right now.”
A short position is a sale on a borrowed security. The investor needs to eventually return the borrowed stock by purchasing it back from the open market. A short squeeze occurs when investors with heavy short positions are forced to cover, or buy back, their shorts in the event of a sudden share appreciation – short sellers are essentially being squeezed out of their short positions, typically at a loss. Consequently, the additional buying momentum from short sellers covering their options contracts help push prices even higher.
Furthermore, seasonal trends could also help add to bullish sentiment. Over the past 20 years, May was the fourth-best month for natural gas.
“So we’re setting up a historically bullish month with a structurally bullish setup,” Krinsky added.
United States Natural Gas Fund
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Max Chen contributed to this article.