Natural gas is getting lost in the chatter among the oil rampage by the bears, but there is much worse carnage over the past three months in natural gas than crude.
The recent few weeks have seen crude closing the gap, but natural gas is now down over 28% over the past three months, while crude is still trying to break the 20% number.
Overall, the short-term technical picture is a disaster. The Relative Strength Index (RSI) index hasn't been this low in the past year, while the Force Index is challenging lows last seen in February, as both momentum and volume are extremely bearish.
There is a small bullish divergence in the Commodity Channel Index (CCI), so there is some hope here the extreme bearish trend is finally slowing. Ironically, there is just enough on this chart to make me think the better bounce may come in natural gas. The extremes are more stretched, the one bullish divergence is greater and the price has been beaten down more.
The challenge we face is where to look. While some of the smallest energy-related names offer the best bounce potential, if things don't turn many of those could disappear or see a stock price sunk so deep recovery becomes difficult.
Companies like Chesapeake (CHK) and Ultra Petroleum (UPL) of the trading world need to be just ignored right now, and anything smaller simply avoided. I would tend to stick with stronger names like Pioneer Natural Resources (PXD) or maybe Conoco Phillips (COP) if I needed something even more diverse. If I were playing for a rebound and wanted to be more speculative, then EOG Resources (EOG) and Cabot Oil & Gas (COG) would be the names at the top of my list.
The drop in natural gas is so extreme at the moment, I might even consider a small position in the United States Natural Gas Fund (UNG) just for the week at $7.33. I am looking to give myself a little space to the downside, but not much here, using $7.10 as a stop. I will look to take some profits on any move over $7.50, increase my stop to my entry price and be down to nothing more than a runner if this gets back to $7.72.
This is a very tough space right now, resulting in a limit of position sizing here. I can't see taking a short with anything more than 5% of a portfolio, even a trading portfolio, until we see at least a small sign of stability.