Trader’s Narrative

Amaranth Advisor’s spectacular implosion has been all over the major newspapers, business tv and countless blogs so I won’t rehash the story of how a supposedly ‘hedged’ fund made a tragic bet on natural gas and kept doubling down. We’ve all seen this classic pattern accompany each and every historic blow-up.

But for me the most interesting aspect of Amaranth’s story is that it could very well be a tell for the Natural Gas market. If your memory stretches that far, think back to the late 90’s when TMT was all the rage and everyone and their puppy wanted to get in on that ’space’. But over in the dank and dark corner of gold stocks and dedicated bear mutual funds managers were busy closing shop.

I’ve been bullish on natural gas for a while now but it hasn’t worked out really. And in case you’re wondering, I’m still bullish. I suspect that Amaranth’s exit from the energy arena is a tell that natural gas will find support here and retrace some of its decline.

Because it’s dangerous to go against the trend I would not play this with Natural Gas futures itself. It’s way too volatile. Instead I would go for an equity proxy like natural gas stocks or Canadian energy trusts that are heavily weighted towards NG.