Charts suggest the natural gas price surge isn’t finished, Cramer says

CNBC’s Jim Cramer said Tuesday that technical analysis indicates the continued rise in natural gas prices is tied to a short squeeze in the commodity and relief could be on the way — just not immediately.

“The charts, as interpreted by Carley Garner, suggest that natural gas could continue to explode higher for a little while, but ultimately she thinks this is the same kind of temporary short squeeze rally that we’ve seen in so many other commodities,” the “Mad Money” host said.

“Sooner or later, she’s betting it will end, and prices will fall as swiftly as they rose,” he said.

An unusually hot summer, plus disruptions associated with weather disasters such as Hurricane Ida, played a role in kickstarting the jump in natural gas prices, Cramer said. “However, unless we get an extremely cold winter, Garner thinks that market is overestimating the level of demand here with nat gas at five bucks and change.”

Cramer pointed to a chart from Garner that shows data from the Commodity Futures Trading Commission’s commitments of traders reports for natural gas futures, which contains net positions of small speculators, professional money managers (represented by the green line) and commercial hedgers.

“Over the summer, you can see that these money managers took a large net short position as natural gas continued to rally,” Cramer said. “By the time prices moved comfortably over $4, they ran out of firepower —there was no one left to sell — and when that happens, prices tend to skyrocket, which is exactly what happened.”

Then natural gas prices took another leg higher when the bearish investors decided to cover their short positions, forcing them to buy back the futures at higher prices and adding more upward pressure, Cramer explained.

However, Cramer said despite her view that the squeeze will eventually subside, Garner does not think it’s “out of juice” just yet. A key reason is that the large speculators have not become neutral or net long yet, based on the latest CFTC data, Cramer said. That’s what it took for past short squeezes to wind down, Cramer said.

“If that pattern holds true, Garner thinks natural gas could move toward its 2009 or 2014 highs. … That’s somewhere between $5.75 and $6.50,” before it peaks, Cramer said.

Natural gas futures hit a high of $5.369 per one million British thermal units Tuesday, its highest levels since February 2014.

Garner believes it’s unlikely for natural gas to top those 2009 or 2014 peaks, Cramer said, because the U.S. hasn’t seen anything above those levels since the fracking boom.

“That said, if natural gas breaks down below $5 … well, this whole move is over and Garner expects a similarly swift breakdown,” Cramer said. “Eventually, she’s predicting that new supply will bring nat gas back into equilibrium [at] nearly three bucks.”