Real Asset Chartbook Week #10

(New Weekly E-Mail Structure - Link To Weekly Chartbook at the Bottom)

We will try to highlight a key takeaway from the chartbook in the lead-off section of our Friday emails going forward. We last did this on Twitter the week of May 6th. At that time, we flagged the Uranium sector as one that looked ready for a breakout; since then, the industry, as measured by our index, is up 19%. Our investment in the sector (GLO CN: Massif Capital Report on Global Atomic) is up 10%, trailing, but it's a notable contribution for the month.

This week, we are interested in US NatGas. For the last few weeks, the NatGas Mismatch Indicator has been flashing red. The mismatch indicator identifies positioning mismatches between the net number of individual speculative traders and their net speculative open interest. These points frequently intersect with price inflection points and can be useful trading signals. They are also associated with periods of heightened volatility and elevated news flow in the market.

The current mismatch is a negative one: more traders are long NatGas than short, but the net open interest is short. 

When paired with a dry powder chart, in which we highlight the trend over the last 12 weeks, what we see is that the number of short traders is growing, the number of longs is shrinking, and the non-commercial open interest is increasingly short.

You cannot determine what's happening in a commodity market by simply looking at positioning. We have introduced a new page in the chartbook that examines US Storage. The chart below, which is part of the new page, shows the current US NatGas in storage.

What we are seeing is NatGas inventory rebuilding quickly. From the storage low set on March 7th, gas in storage is up 53%. The five-year average growth in NatGas in storage over the same period is 28%. Production and injections are running faster, yet NatGas prices have been consolidating around the $3.75 level for the past month.

We think this combination of variables is suggestive of short-term weakness in US NatGas prices unless we see an early start to summer cooling demand. There is some evidence of summer cooling season bullishness, see US Natural Gas Storage page in the chart book and pay attention to the Front vs. Spot vs. Summer Strip chart for evidence. Hotter summers has been a trend, we will see if it continues.