Technical trading on the US natural gas futures market: the dry wood waiting the spark

摘要

Technical analysis is a broad set of tools which aims to measure the market sentiment. It assumes market movements are not random but they follow patterns and trends. There are two stake, identifying the current trend and determining if it will keep on. It is why we say the strategies based upon technical analysis are trend-following. We notice the Tinkerbell effect of the strategies. Their effects exist because traders believe it. If traders buy when the price is rising, price will be keeping on increasing and vice-versa. The trend-following strategies contribute to volatility and might generate bubble patterns. They engage in positive feedback trading which is a perpetuation thus the price can vary irrespective of the fundamental value of the asset (Bradford de Long et al., 1990). Thus, the self-fulfilling prophecy is activated. The trend is your friend, until it ends. Richard Dennis lost $50 millions during the 1987 crisis. The performance of trend-following strategies remains a highly controversial issue. The issue about their profitability has not been solved. Beyond the issue profitability, there is an other question. What is their influence on asset pricing We would like to raise the debate about the consequences of trend-following strategies on price distortion. The anti-bubble side says only fundamentals plays a role. Natural gas is concerned by this issue. It is easy to find content about the advantages of trend-following strategies (Dart, 2017). This energy is particularly important in the US because it represents 30% of the input for the production of electricity. he debate has been very heated after the Aramanth failure in 2006. A US senate report pointed to excessive speculation (Levin and Coleman 2007). The wide amount of contracts owned by Aramanth raised the issue of market destabilization: Amaranth held as many as 100,000 natural gas contracts in a single month, representing 1 trillion cubic feet of natural gas, or 5% of the natural gas used in the entire United States in a year. At times Amaranth controlled 40% of all of the outstanding contracts on NYMEX for natural gas in the winter season (October 2006 through March 2007), including as much as 75% of the outstanding contracts to deliver natural gas in November 2006.