What doesn’t seem unlikely is energy companies taking advantage of high NG prices going into winter and selling their entire inventory… especially if they think prices can recover based on physical demand. Sell it all early, let the physical market bring it back up.
With oil and gasoline way down, they may be eager to book.
The trade is based on an Elliott Wave formation, the Extended 1st Wave, which is generally highly reliable. The target is most commonly the 78.6% Fibonacci extension of (circled) waves 1-2. In many cases the 3rd wave ends at 62% which this has also. In this case that happens to also come in near two overhead trend lines for additional geometric resistance.
The previous high (8-22) was also precisely 162% of waves I-II, and the next Fib is 178% which aligns with the trend lines and Extended 1st Wave target.
The anticipated movement will obviously depend on the underlying NG Futures market – which does have a lot of similarities although not the same longer term Fibs or overhead trend line… but the Extended 1st Wave target of 78.6% is perfectly inline with UNG.
As with any trade, there are no certainties this hypothesis will prove true (especially not if Putin actually cuts off all NG for the winter), but it certainly seems like a good place for some risk if it gets there.
If you do trade along with this idea, don’t risk a lot as there is potential this blows out to the upside.
Update: Interesting that the Oil / NG spread is almost exactly 10x today (Oil at $90 and Natural Gas at $9).
If Gasoline and Oil bottom, big money could basically reverse this spread (long Oil, short NG).