United States Natural Gas Fund: A U.S. Economic Recovery Play

Second, the July 2009 Buy call barely survived the $8.40 sell/stop loss and the chart, from a technical standpoint, has the look of a bear hug -- a bearish stock pattern. However, a recent break above the key, 50-day moving average, and the existence of psychological support at $10 maintains the buy rating.

From a fundamental standpoint, the argument forwarded here is that the price of natural gas, despite the likely large increase in proved reserves and stockpiles associated with the accessing of unconventional gas (also called shale gas) through hydraulic fracturing and horizontal drilling, is forming a bottom.

The basis for the bottom? Likely increased demand as a result of the U.S. economic recovery, and better-than-expected U.S. snowbelt demand on a colder-than-normal winter in the U.S. So far, we've got both, with bitter cold temperatures in December 2009/January 2010 sending signals of above-average natural gas demand this winter. And, the U.S. economy? Well, we have mild GDP growth with concerns about organic demand as the impact of fiscal stimulus fades later in 2010. That's hardly a robust GDP forecast, but, again, it's enough to keep the UNG Buy in play.

Further, there's also a price disparity between natural gas and $80 oil -- natural gas is cheaper on a standardized energy unit delivered basis, and the reconciling of which will not involve a collapse in oil's price. (However, oil prices may moderate). What's more likely? Natural gas prices will rise, hence the buy rating for UNG.

2010 Outlook: United States Natural Gas Fund is a long-term play, but if you're looking to sell UNG within the year, take your profits after it rises to $14.75, or if it fails to break through $15 resistance.

Stock Analysis: United States Natural Gas Fund is a high-risk commodity-traded fund. Don't buy UNG if you're a moderate/low-risk investor. If you can tolerate high risk, consider buying a 25% position in UNG. Under any circumstance, don't buy more than 50% of your UNG position before March 2010. Sell/stop loss if you were to buy shares in this fund: $8.40.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.