UNG Update

UNG is a long term, long position that has a solid and fairly large base able to support a large move. I look at this as more of a long term investment rather than a trade. Most every one in the UNG trade has a decent profit even though we are still in the base.

Today UNG fell -2.35% upon the release of the EIA weekly Natural Gas report.

Released On 1/24/2013 10:30:00 AM For wk1/18, 2013 Prior Actual Weekly Change -148 bcf -172 bcf

Highlights Natural gas in storage fell 172 billion cubic feet in the January 18 week to 2,996 bcf. As you can see we had a draw of 172 bcf this week vs last week's draw of 148 bcf, this puts natural gas right about where it was this time last year.

After the 10:30 release of the report, there was a fairly substantial slide with large volume...

This volume wasn't entirely from the report alone, but included some stops hit as the 5 min candle crossed below recent local support triggering stops.

The daily chart still looks good and although this pullback was a bit more than I'd like to see in a day for a pullback, many of us have forgotten what a healthy stock trend looks like, that is to say they should include corrections, however over the last several years with F_E_D / ECB / PBoC and BOJ liquidity injections, few traders remember what a normal, healthy trend looks like as they think a, "Birinyi's ruler" trend is normal, it's not, it's a house of cards. Not to get too far off track, but every time they say, "This time it's different", it was said during the Dutch Tulip Craze, it was said during the South Seas Trading Company, during the one time when they had the most reason to say it, during the Internet/Tech revolution, they said it of Apple and they say it now during the "Great F_E_D Bubble of the 21st Century", but as Kevin Warsh (formerly on the F_E_D's board of governors) said so succinctly, "Policy accommodation is easy to get in to, it's exiting it that is the hard part", ironically that's how most 20th century bubbles burst, the F_E_D's withdrawing of policy accommodation which always happens. 

In any case, I strayed a bit too far.

As for UNG's daily chart...

At the yellow area we were able to confirm that break out as a head fake move and one that could have been sold in to and UNG could be bought back at lower levels. In my opinion, it was a necessary move as UNG is close to breaking out from a stage 1 base and moving to stage 2 mark-up or what you might call, "The easy money", but before it does that, there's going to be one last pullback, the big boys are going to top off the tanks just like we fill out positions at advantageous areas and it should make a run right through resistance and in to stage 2.

The 1/9 low was verified by heavy 3C accumulation and today's move really isn't a big deal when put in to context.

Using our X-over screen...

The recent bottom that 3C  is joined by a long X-over and today's move pulled back to the 10-day moving average which is very common for the first pullback within a new move. We may see a little more lateral consolidation before a reversal, but I don't see this as a problem in any way. In fact, looking at the 3C chart, it seems the pullback was planned before the EIA report came out unless the report was leaked in advance which EIA use to be fairly notorious for.

On the powerful 60 min chart we see the head fake breakout in yellow which was confirmed by a negative divergence and then the accumulation of the pullback at the white arrow which is the 1/9 lows and as you can see, a negative divergence for a move down (correction) was in place before the EIA report was released, almost two full days before.

Judging by this 15 min chart, I'd say we are likely to see a little "U" shaped price action in to a rising 3C positive divergence as other timeframes are migrating toward the 15 min chart. Indeed, this could be an opportunity to start or add to a UNG long. All in all, it doesn't look like anything to be concerned about and more like an opportunity if you are interested in UNG in the area.