Velocityshares 3X Inverse Natural Gas Etn (DGAZ)

[surehands]

While the EIA-reported injection today is likely to be bullish, it will face considerable pressure to outperform to prevent a "sell-the-news"-type pullback. With natural gas up nearly 8% inside of a week, temperatures poised to moderate by the middle of next week, and natural gas production at record highs, I feel that even a small miss in today's injection number will be used as an excuse to take profits, even though the commodity remains steeply undervalued according to my Fair Price model, with natural gas trading at a nearly 9% discount versus a Fair Price of $3.47/MMBTU based on current inventories alone. I expect it would take an injection of smaller than +8 BCF to be viewed as bullish and prompt a further rally towards $3.20/MMBTU while an injection of larger than +15 BCF would be viewed as a disappointment, prompting a pullback towards $3.10/MMBTU. An injection between +8 BCF and +15 BCF would be viewed as neutral with prices equally likely to rally or pullback. However, given these discounts from Fair Price and steep year-over-year declines in inventories, I expect that any pullback would be unlikely to take the commodity back under $3.00/MMBTU unless the forecast for December trends markedly milder.


Based on historical (seasonally-adjusted) and implied volatility, there is a 68% chance that natural gas price will trade in the range between $2.92 and $3.41 per MMBtu over the next five trading sessions. A narrower, statistically adjusted range is $3.06-3.27 per MMBtu.