Natural Gas Looking Bullish

I've been patiently waiting and watching natural gas for an entry to buy as I feel this market has bottomed. If you look at the above chart of natural gas futures, you will see that a very important support level has been tested last week and appears to have held. The 4.50 area which was once resistance has now become support as you can clearly see.

In the lower pane is the MACD indicator which has given a buy signal indicating that momentum is now coming into this market on the upside.

The question that comes to mind is how to play this market. Well the best way is to simply buy natural gas futures. Being that I no longer trade futures markets due to the many ETFs that make participating in commodity markets much easier, I chose to buy a natural gas ETF.

The two ETFs that come to mind are UNG and GAZ. The problem with these two ETFs is that they sometimes do a poor job at tracking natural gas futures due to the spread differential between the spot month and the next month out. Being that I am not willing to trade natural gas futures, I decided to go ahead and buy GAZ anyway. The reason I chose GAZ over UNG is because GAZ seems to be slightly stronger than UNG. You'll notice in the chart below that UNG actually broke to a new swing low while GAZ did not.

I bought GAZ in the morning today on the gap down and have place my protective stop right below last week's low. If I am right, I think we'll see natural gas futures move well above last month's high which makes the reward to risk ratio quite favorable. The only problem I have with this trade is that if natural gas futures does indeed rally well above the last month's high, there is no guarantee that UNG and GAZ will do the same. I'm sure these two ETFs will underperform the futures but should still move higher which is why I think it's worth buying right here.