UNG / UGAZ / DGAZ Update

Yesterday I posted, UNG / UGAZ / DGAZ Update, the main points were that UNG looks set to complete a larger reversal process and it was likely to pullback from yesterday's gap up to do that which it has this morning and it will form a slightly larger lateral reversal process, then make a move to the upside which can be played with a nat gas stock or I'd prefer something like UGAZ.

The longer term UNG position is also covered and if you are interested in the trade, definitely check out yesterday's post UNG / UGAZ / DGAZ Update as it gives some idea of how long/large I expect the reversal process to be, this is just an update on top of yesterday's post. However, I do plan on closing a long term DGAZ (3x short UNG) at a loss, but it did recover significantly from where it was. I'll likely enter the UGAZ long, but I'll probably be looking for the range to develop and a head fake/stop run under the range just before UNG/UGAZ start their upside move. If the head fake is strong enough and we have good confirmation, I'd consider options (calls) if there's enough liquidity.

At the yellow arrow there's a capitulation event which is short term oversold in this case, as pointed out yesterday on a macro basis (exhaustion / Capitulation events in a primary trend context), capitulation doesn't mean the dead lows and often the market drifts lower before putting in a base as we are seeing here.

 If you saw yesterday's post, then you'll remember the reversal process is usually somewhat proportional to the preceding trend and I drew in about what I expected to see.

So far the move lower today to widen out the reversal process is showing a leading positive divegrence which is EXACTLY what we want to see.

 And the 5 min chart is showing a good start to a strong divegrence, note the white trendline. We'll likely see the reversal process form clear support, that's the area a head fake move (in the form of a stop run/drawing in shorts)  is likely to target and that is our strongest entry.

The larger overall trend on a 10 min chart so  this looks like a very high probability trade to the upside, it's just a matter of timing the entry at this point.