Despite being sidelined for the most of the first half of the year, weather conditions, supply and demand imbalances, and Congress could lead to an opportunity in natural gas.

According to the National Weather Service, the next few months are expected to be warmer than usual, with average temperatures being above normal by 2 to 3 degrees across the nation. What this means is that consumers will likely run their electric powered air conditioners more often and for longer periods of time. This further translates to increased demand for electricity, which has a domino effect and increases demand for natural gas.

Natural gas ETFs, down and out for a good part of this year, may soon put their troubled days behind them – if the experts’ prognostications prove to be right on.

What’s in the forecast?

The direction the markets move this week will likely determine where prices go the next several months. We suggest booking profits on longs in crude thinking we could get a set back. We would rather be on the sidelines wanting in the market than in the market wishing clients were on the sidelines. Prices are getting over bought and have failed to make it to higher ground in recent sessions. We’re expecting natural gas to break above the down sloping trend line that has capped rallies since mid-June. Continue to buy October and November 50 cent call spreads.

The S&P penetrated the 200 day MA today for the first time since mid-June but before you get too bullish we feel this move is in its eighth inning. We see resistance at 1111 followed by 1134 in the September S&P futures. Clients will continue to scale into shorts that hold those resistance levels. Additionally on a trade higher clients will liquidate their August 1150 calls and buy back their September 1000 puts. This should leave them with a realized profit on those two legs and long a September 1075 put holding for the next leg down. Sugar managed another positive day today gaining nearly 2%. We expect a correction to the magnitude of 10% any day now.