Brave catch natural gas rally

Natural gas was going to rally but when?

For over three years, investors looking to find a bottom in fuel and natural gas stocks have been frustrated. Anyone wading into the plentiful fuel or related shares had been burned as prices continued to slide and inventories ballooned.

Some analysts had projected natural gas would sink below $2 US per British Thermal Unit (BTU), but it wouldn't stay there for long as buyers would swoop in and producers would lay down drilling rigs as production became uneconomic.

That's what happened.

But, the subsequent rally in natural gas has caught some investors off guard.

Since April 19, natural gas is higher by 35 percent as of this writing and has broken through its 50 and 100-day moving averages. Those brave enough to buy natural gas around the bottom and with the guts to handle the volatility and risk of leveraged exchange-traded funds like Horizons' NatGas Bull+ have done even better.

But, is the rally in natural gas sustainable? Eric Nuttall, portfolio manager of the Energy Fund at Sprott Asset Management and a regular guest on Market Call Tonight, says the strength of the move has surprised him. He thinks institutional investors are buying for the long-term and are not waiting to see if the bottom has been seen or not.

Nevertheless, Nuttall thinks there is some more pain to come as seasonal storage capacity for natural gas in Canada will be reached much earlier than usual, perhaps July. That will renew pressure on prices, which will result in the ultimate capitulation by natural gas investors. Although, Nuttal thinks natural gas stocks may have already bottomed.

There are those who believe natural gas is a great long-term investment partly because liquefied natural gas plants are being built in North America to ship LNG overseas. However, the main question yet to be answered is whether the days of being early to the trade and getting bitten by the sudden reversals of natural gas are over.