Today we look at continued gains in UGAZ and what that might mean for prices after the weekend
UGAZ – The market opened significantly closer to Wednesday’s close at 22.30, we shouldn’t see this trend continue – OPEC’s failure to agree to a production freeze means that prices will inevitably fall back to around 20.00
DGAZ – This means we’re going to see a sharp rise in DGAZ, if not today then by Monday morning. We might even see prices as high as 9.50 again like we did Wednesday morning. I expect prices to open dramatically higher on Monday, and would recommend holding any position until then.
Recently I have added Cornerstone Strategic Value Fund (CLM) as a substantial part of my long-term holdings. CLM is a dividend distributing security that as far as I can tell is currently undervalued. For fy-2016 they are distributing 0.28 per month per at a price of 14.28 which means they are promising dividend backed growth of nearly 23% annually.
While the distributions will fall next year to 0.22/share, this is still impressive growth and impressive future value. If this trend were to continue these shares are still very undervalued, and I could see up to a $3 increase in value during the next year.
While everything is a risk, and no one can ever be certain I am confident that this is a safe long term position to hold.
Today I’d like to go into the story of my first (and fortunately my only) big loss. Yesterday I opened a position in DGAZ in advance of the EIA weekly storage report being down from last week. Unfortunately I had not realized that analysts had anticipated worse than this, and so the price of natural gas spiked, immediately sending my position into a nose dive.
By the end of the day it was down nearly 8%, and based on longer term value assessments of DGAZ I decided to wait it out. The next day it opened 5% up, and my losses were dramatically lessened. I made the decision to close, 3% down and somewhat shaken by my first negative encounter with a highly leveraged ETF.
By the end of that day my position would have been down 12% so I am somewhat pleased that I made the best of a bad situation, but I am disappointed that I missed a fact that everyone else saw. In the future when trading with DGAZ I will place a hard limit order as an exit strategy, as my queued order wasn’t able to execute fast enough to get me out as the price dropped.
Today I ended a position in CHK that I took on Wednesday for a fraction of a percent gain. I feel fortunate that I was able to execute a the price I did, because the price of CHK fell nearly 5% during the remainder of the day.
My intention in opening this position was to increase exposure to natural gas prices – traditionally CHK has been a very reliable way of doing this, and given their recent corporate issues it seems reasonable that increased gas prices would do their price a world of good.
Unfortunately they simply have too much unpredictable volatility, counter to increasing futures prices throughout the day their stock price fell. I have yet to fully determine why this was, but I suspect there may have somewhere been news of further instability.
The lesson here is that no security will ever fully match exposure to natural gas futures like a pure play in natural gas futures.