The Easiest Way To Close Out 2014 With 20% Gains
Greg Guenthner

Right now, the city of Buffalo, NY is covered in five feet of snow, with maybe another three on the way. We’re talking about eight feet of snow here. And it’s not even Thanksgiving!

Yeah, bad news for those poor folks. But good news for you. Because now that another harsh winter is upon us… you have a massive opportunity for quick double-digit gains…

How? From buying natural gas. There’s going to be a huge demand for it this winter. And according to its most recent forecast, the Energy Department predicts residential natural gas prices for November through February will rise 7% compared to the same period last year.

I think it’ll spike even higher. Meanwhile, natural gas storage is about 400 billion cubic feet lower than a year ago. Lower available supply and higher demand equals one thing – higher prices.

I’ll show you how to play this potentially blockbusting trade in a minute. And the best part? The upside on this trade is enormous…while the downside is minimal. I’ll also explain why that is.

Let’s take a closer look at what’s happening…

Natural gas has been insanely cheap for years. We’re producing more natural gas now than we have in my entire lifetime thanks to the bustling Bakken field in North Dakota. In fact, the United States just recently surpassed natural gas production levels from 1970. All-time highs are here, baby. Of course, this gas glut has also depressed prices.

If you were in London, your natty bill would be 225% higher were it not for the glut of natural gas. Japan? Forget it. 400% higher… Don’t believe me? Take a look:

But we’re headed for a spike in natural gas prices, especially if this winter is anything like the last. Remember last winter? Colder than average temperatures helped spike natural gas prices to $6.50 back in February (we’re looking at prices close to $4.40 today).

And it looks like this winter could bring more of the same. It’s already pretty damn cold out there. This little record-breaking snowstorm in Buffalo is just the beginning. As Matt Rogers, a meteorologist at the Commodity Weather Group, which forecasts weather and heating demand for energy companies, says, “There’s pretty good consensus for a cold winter overall.”

And that polar vortex from last year? Oh yeah, it’s back in action again. And according to Accuweather, “The polar vortex, the culprit responsible for several days of below-zero temperatures last year, will slip down into the region from time to time, delivering blasts of arctic air.” Only this time, it’s early…

It’s already taking its toll on power suppliers. As the Cleveland Plain Dealer reports, “Electric customers in 13 states including Ohio on Tuesday set a record for November demand.” Ohio and Pennsylvania area already urging folks to conserve gas and electricity. So it’s only a matter of time before we see these cold temps spook the energy market.

And it doesn’t hurt that energy stocks are already beginning to pull themselves out of the gutter this week. In fact, the Energy Select Sector SPDR ETF (NYSE:XLE) was one of yesterday’s best performers. It gained more than 1.25% as it continues to bounce off its October lows.

Natural gas is next in line for a big pop. It’s already broken out of its summer rut. A big, tradable spike is next. And it could be a doozy.

The best way to play it is the United States Natural Gas Fund (NYSE:UNG). After enduring what looked like a complete breakdown back in October, UNG has stormed higher and cleanly broken out of the trading range that had trapped it since July…

A spike similar to what we saw last winter would put UNG a full 20% higher from current prices. And with a trade like this, our risk is very well defined. Your downside here is minimal. Here’s why: If price retreats back into the yellow box, we just walk away with a very small loss. You only stand to lose a little. But you stand to gain a lot. That’s why I love this trade.

So go ahead, venture outside and build a snowman if you live in one of the colder areas of the country. You’ll have your huge natty gas gains waiting to keep you warm when you come back inside…

Greg Guenthner

Greg Guenthner, CMT, is the editor of the Daily Reckoning's Rude Awakening. Greg is a member of the Market Technicians Association and holds the Chartered Market Technician designation.

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