A Natural Gas ETF Play For The Summer Months

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May 21, 2013 11:01pm NYSE:BOIL NYSE:UNG

naturalgasmoneyDouglas Davenport: Even if you’re a novice investor, you’re probably familiar with the age-old saying, “Sell in May and go away.” In short, it means that the May through October season

each year is often a dead period in the markets.

In fact, imagine you had invested $10,000 in the Dow Jones Industrial Average on May 1, 1950, then took your remaining money out of the market on October 31, and repeated this process every year. Care to guess what your initial investment would be worth today?

$9,608. That’s right, all you would have to show for 62 years of stock market investing would be a net loss of $392.

Conversely, if you had held your money out of the market during that May through October period each year, and just invested in the Dow Industrials from November 1 through April 30, your results would be quite different. Your initial $10,000 investment in 1950 would now be worth approximately $870,443!

And what if you had let your initial investment ride, putting $10,000 into the market on May 1, 1950 and then forgetting about it for the intervening years? You would now be sitting on about $726,000, not including dividends. An excellent return, yes, but not quite as spectacular as it would be if you followed the seasonal investing strategy.

Demand for natural gas is bound to surge this summer.

Seasonal Investing in the Major Asset Classes

So the adage “Sell in May and go away” does seem to hold true, at least for stock market investing. The pattern may be self-perpetuating at this point, but for whatever reason, trading volume does tend to slow dramatically around this time of year. Historically, the month of May is flat, with a zero percent return in the broad indexes.

But what about the other major asset classes?

Well, currencies typically don’t offer much relief for investors looking for yield during the summer months. The U.S. dollar tends to do well only from January through April each year, is generally flat in May and June, and then trends marginally lower from July through December.

Meanwhile, different commodities follow different seasonal patterns. Gold tends to peak in May, move lower through August, and then pick up again in September when the Indian marriage season kicks off.

Crude oil prices, like stocks, tend to stall in May. But oil is notoriously unpredictable and volatile, so seasonal patterns don’t always hold in that market.

However, other energy commodities do tend to follow seasonal patterns. For example, natural gas prices tend to rise during the summer months in the northern hemisphere, because natural gas is used to power most air conditioners.

Natural gas has been an interesting market to watch over the past few months. It has outperformed other commodities for most of this year, but prices have pulled back over the past couple weeks. That pullback may set the stage for a major rebound, especially if this summer is as hot as predicted.

A Natural Gas Play for the Summer Months

If you’re looking for what should be solid returns over the next three months or so, you may want to consider the ProShares Ultra DJ-UBS Natural Gas ETF (NYSEARCA:BOIL). This exchange-traded fund has two-times leverage. So for every 10 percent gain in natural gas prices, BOIL is designed to rise 20 percent.

Click for larger version

As you can see from the chart above, BOIL recently touched its 200-day moving average, and appears to be reversing higher from that level now.

So if the pattern holds, investing in this ETF may actually help you pay the air-conditioning bills this summer!

Best wishes,

Doug-DavenportWritten By Douglas Davenport From Money And Markets

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaMare based upon data whose accuracy is deemed reliable but not guaranteed.  Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual   prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

This investment news is brought to you by Money and MarketsMoney and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss  Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of  investing, interest rates, financial safety and economic forecasting.  To view archives or subscribe, visit http://www.moneyandmarkets.com/.

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