Monday, October 13, 2008

UNG / USO Ratio

couple months ago I mentioned how cheap natural gas was compared to crude oil and posted a ratio chart of the two ETFs, UNG and USO. since then the ratio has really come into its own and formed an intriguing pattern on this equivolume chart:

the December contract for Natural Gas is about $7 now. I don't see why it couldn't bounce to 9 or even 10 bucks before it expires. the net short position of the 'large trader' (hedge funds) category is just outrageous right now. at some point that's going to get unwound.

I'd give this strong chance of turning around in the near-term. but if there's a close much below the lows of last week then the situation will need to be reëvaluated.

edit: 'last week' replaces 'next week'. oops.