HBP NYMEX Nat'l Gas Bull+ (HNU.TO)

Leveraged Bullish play on Nat gas. He sees ETFs as mindless things. In this case he has pondered it many times. It is a way to buy the improvement in the gas price, which is lagging all the other improvements that are going on. You have to be careful with leveraged products because they can erode.

Natural gas has been absolutely hammered. Natural gas has 2 seasons. One is in the fall for the heating season, and the next season coming up is for air conditioning, which starts towards the end of March, and is typically a good time to be moving into it. This one is a leveraged product and you don’t want to be holding it for a long period of time. He uses this, but only for a few days. For a longer period of time, you should be using Horizons NYMEX Natural Gas (HUN-T).

He doesn’t understand the belief that natural gas is going to be going up. Until he sees this market turning around, he is really not interested. This is something that people have been caught on. They have gone into it thinking that it was a good, long term play, but it is not. It is a trading play.

El Niño is predicting a warmer winter for us. Storage levels for natural gas are getting fuller and this is predicated on a warmer winter and less draw down and how full those storage capacities can get. Natural gas is a good product, but the supply constraints will not be going away anytime soon. He thinks it is going to be lower for longer. Leveraged products like this should not be held for longer than a week or so. There is risk here.

They will tend to do a reverse split when it gets down to a low enough price. Gas prices have a very steep curve. If the spot price does not improve over the winter, you are looking at losing about 25% just in the steepness of the curve. You don’t want to hold this for any more than a couple of weeks. You can’t buy and hold. It is double leveraged.

There is always risk in these. Every day, to get the 2 to 1 leverage, when the market goes up they have to buy more of the derivative the next day to get the same benefit. When the underlying commodity is volatile, you get more erosion of the ETF value. Nat gas is amongst the highest in volatility. It is better to play it with the equity ETFs. ZJN-T, for example.

Double leveraged fund. You only use it for short term holds. The seasonal period starts right now until the end of June, getting a return of 12% typically. We are starting to see some flatness in the chart now. HUN-T is not leveraged. There is less volatility.

Whenever he has bought anything to do with natural gas, he has always lost money on it. He is not very bullish on natural gas. Prices are just not there.

This is the Nat Gas double up. He would not do this right now. There is some really high risk here. It is a falling knife. You need to increase the probability that Nat Gas will move higher. Wait for a move higher.

Natural gas right now is looking rather appealing. The chart shows it has been forming a basing pattern over the last few months. It is now coming into the period of seasonal strength for natural gas. From about now through until November, natural gas tends to do well. If we see support hold at about $3.70, you would expect this to go significantly higher. Looking favourable for a move higher through to November. Because this is leveraged to 2X the price of natural gas, you have to be nimble.

Thinks the outlook for natural gas as a commodity is good. Two things have really impacted the demand for natural gas. One is weather and the other is industrial production. Industrial production in the US is starting to pick up, so demand for natural gas will be there. You could either play the commodities or play the companies. In this particular case he would recommend that you buy futures direct. ETF’s in this case are not particularly effective.

This is a very interesting one. People buy these things and everybody has been waiting for natural gas to do very, very well. Feels you have to look a little bit beyond this one.

This is a Double Bull, so remember that for short-term trading it is fine. He has no idea where natural gas is going to go for the next 2 weeks. We are into the summer months where we are past the shoulder months, so you get the weekly supply/demand indicators that can whip the price around $.20-$.30 pretty easily.

Storage is low in Nat Gas. Long term he likes it because of the dynamic of it burning cleaner. HNU-T is not what you want to trade for long periods of time because of rebalancing. Prefers FCG-N (large caps, diversified portfolio). Or ZJN-T is a bunch of juniors in Canada. You can hold them for a long time.

US inventory number on Nat Gas tomorrow. HNU has done well because of cold weather. We had a little move higher in Gas itself. The issue is with the ETF. It is a short term play on Nat Gas, so don’t hold it long. You would be better buying the Nat Gas ETF rather than this leveraged one if it is for a longer term hold.