Natural Gas: Hurst Cycles - 16th January 2023

A weak bounce from the 40 week nominal component precedes a collapse in the US Natural Gas price. We look at an incoming short term low and prospects over the next few months.

Jan 16, 2023

Analysis Summary

Natural Gas made a brief flurry upwards, subsequent to our last report in November 2022 in which we explored the convoluted placement of the 40 week component low. Whilst price hit and exceeded our target range of 6.5-7 the follow through from this component has been weak, further emphasising the 4.5 year nominal peak probability we mentioned in November.

From 16th November Report:
We can expect it unlikely to breach the previous highs near 10, the 4.5 year nominal peak has probably occurred already. A test of the 20 week component FLD is highly likely at around 6.5-7 and should amplitude remain in the 20 week component until February, a test of the 40 week FLD around 7-8.

Clearly amplitude at the 20 week component to the bullish side has collapsed, replaced by a bearish emphasis that is now likely to be troughing into a low of at least 80 day nominal magnitude. There is some compelling new evidence from the unbiased time frequency analysis of a component around 105 days in wavelength. This may well be a frequency modulated 20 week wave or a very long 80 day nominal component. We prefer the former and it will be fascinating to track this component moving forwards.

The 18 month component, running at around 17 months from the TFA below is due to trough around April to May this year and will likely co-incide with support at the 54 month FLD around 3, shown on the Sentient Trader long term chart.

At the shorter term both analysis methods converge on the visually apparent 40 day nominal wave, running at around 25-32 days in wavelength and troughing shortly. A test of the area around the 80 day FLD at 4.75-5 is likely.

Phasing Analysis

Long Term

Components including and longer than the 18 month nominal wave

The 18 month nominal wave is running around 16.8 months average wavelength according to the above signal in the TFA. This calculation consists of 9 iterations since 2009 and is the preferred estimation over Sentient Trader’s analysis.

Medium Term

Components between the 20 week to 18 month nominal wave

The component around 105 days in NG is compelling. Whilst this throws some confusion into the analysis with the 80 day and 20 week waves (from Sentient Trader) it is a present and clear signal and should be objectively seen as so.

Short Term

Components shorter than the 20 week nominal wave

Notionally the 40 day ‘nominal’ wave in both Sentient Trader and our bespoke time frequency analysis. This incoming trough should also be a low of the larger component one degree above.

Trading Strategy

Interaction Status

Interactions and price in the FLD Trading Strategy (Advanced). This looks at an idealised 40 week cycle and an array of 3 FLD signal cycles. We apply the instrument’s phasing to the model and arrive at an overall summary for the interactions with the 20 day FLD, current and forthcoming.

Sigma-L recommendation: Risk Buy
Entry: 10 Day FLD / 20 Day FLD
Stop: Below forming 80 day component low
Target: 4.75 - 5 (around 80 day FLD resistance)
Reference 20 Day FLD Interaction: A2
Underlying 40 Day FLD Status: E
Underlying 80 Day FLD Status: B-C

The underlying trend in NG is heavily down but the incoming 80 day component low should provide a bear market rally to test the 80 day FLD . Price is currently straddling the 10 day FLD at the time of writing.

It will be interesting to see if the component that is clear around 105 days (see medium term TFA above) is also troughing here. It may well be the case that this is the 20 week ‘nominal’ wave subject to some marked frequency modulation.

FLD Settings

If you do not have the use of Sentient Trader use these settings to plot common FLDs in your trading software (daily scale) to more easily follow trading signals and strategy from Sigma-L.
Make sure to account for non-trading days if your broker omits them in the data feed (weekends, for example). The below offsets are given with no added calculation for non-trading days.
80 day nominal: 73.3 days | 36 day FLD offset
40 day nominal: 31.5 days | 16 day FLD offset
20 day nominal: 15.8 days | 8 day FLD offset
10 day nominal: 7.9 days | 4 day FLD offset

Correlated Exposure

A non exhaustive list of correlated instruments for consideration

United States Natural Gas Fund LP UNG 0.00%↑
ProShares Ultra Bloomberg Natural Gas BOIL 0.00%↑
United States 12 Month Natural Gas Fund LP UNL 0.00%↑
iPath Series B Bloomberg Natural Gas Subindex Total Return ETN GAZ 0.00%↑
ProShares UltraShort Bloomberg Natural Gas KOLD 0.00%↑

DISCLAIMER: This website/newsletter and the charts/projections contained within it are intended for educational purposes only. Results and projections are hypothetical. We accept no liability for any losses incurred as a result of assertions made due to the information contained within Sigma-L. This report is not intended to instruct investment or purchase of any financial instrument, derivative or asset connected to the information conveyed in the report. Trade and invest at your own risk.