THE WALL ST JOURNAL

Natural Gas Takes On the Mantle of a Haven

 

Citigroup is touting natural gas to investors weary of other
markets’ wild swings


Aug. 27, 2015 8:38 p.m. ET


Citigroup Inc. is touting natural gas—a commodity so notorious for volatility that its most renowned bet
is called the “widow maker”—as a possible haven for investors weary of other markets’ wild swings.


A sluggish global economy, a staggering China and plummeting oil prices have sent commodity,
currency and stock markets spiraling this summer. But they mean little for U.S. gas futures,
which have been stable for more than two months and even briefly entered a bull market in the
late spring.


The U.S. gas market is an island. Its supplies are cut off from overseas markets, and its demand
comes largely from the need for heat and power, reliable even in tough economic times.


That “potentially makes gas an oasis amid market turmoil,” Citigroup analyst Anthony Yuen said
in a note to clients. “Further, the lower that oil prices get and the worse that financing conditions
for producers become, the better for gas prices.”


Gas’s isolation should appeal to investors looking for a calmer market, analysts said. It has
stayed between $2.50 and $3.00 a million British thermal units since the spring, a far cry from
the days when it could jump between $4 and $10 in a matter of a few months.


That new appeal is partly why Auspice Capital Advisors Ltd. is planning to launch a Canadian
gas exchange-traded fund this autumn, said Tim Pickering, a former energy trader who is
president of Auspice, which manages $300 million. Auspice’s own hedge fund has moved from
betting against gas prices to having a neutral position. It is betting against all other energy prices,
Mr. Pickering said.


Nymex natural-gas futures are up 5.9% since hitting a three-year low in April.


But investors shouldn’t get complacent, fund managers said. In just a few weeks, a mild start to
the fall and winter could leave a lot of gas unused and push prices down another 20%, despite the
historic lows they are already trading around, said George Zivic, portfolio manager for the
Oppenheimer Commodity Strategy Total Return Fund, who oversees $350 million in assets.

—Tim Puko


‘Death Cross’ Formation for S&P 500 May Be Omen
Damage from the six-day stock selloff is still showing up in the markets. The S&P 500 on
Thursday entered its first “Death Cross” since 2011, with the index’s 50-day moving average
falling below its 200-day trend line. For some traders, that is an omen that a short-term stockmarket
pullback could turn into a longer-term downtrend.


The index has seen only 10 other Death Crosses, according to Bespoke Investment Group. In the
following month, stocks fell in eight of the 10 instances, falling an average 1.4%. “That’s
extremely negative, and it suggests that investors should be prepared for more volatility in the
near term,” wrote Bespoke in a note to clients.


But three and six months out, returns improved, with the index rising an average of 3.1% and
8.2%, respectively.


The Dow Jones Industrial Average formed a Death Cross two weeks ago. Since then, it has fallen
4.3%.
—Kristen Scholer


FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND
MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES
MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY
RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT
IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE
RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL
DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED
IN THE PRICE OF THE UNDERLYING FUTURES.