UNG Update

UNG is one of my favorite LONG term long positions, that's because it has done the work and built a solid base, it is near the breakout / Stage 2 area and it has huge upside potential.

I always hope for the best with stocks like this, that we will get a huge volume spike on an 8% 1-day gain and that attracts retail and kicks off stage 2, but reality is there's a set of concepts and processes that are just part of the market's behavior and we see these at least 80% of the time, probably more. UNG is going through that process now, but the good news is that this part of the process is a marker that precedes the reversal (breakout) we have been waiting for (even though many of us are already at a significant profit in UNG). We have to scale the concept to the size of the base and process to get an idea of timing and we need to make sure there's confirmation (that I'm fairly certain on't be a problem).

For those who never got in UNG and want to or those who want to add, we are near that point, I'll show you what I mean and two possible scenarios that may influence how, if and when you add to UNG long.

 Here's the initial interest he had in UNG long before it created a large base, we suspected it would as there were some large changes in character from volume to the momentum in price. I added ROC (Rate of Change) setting 22 to a normal Wilder's RSI on this 5-day chart and ROC (as I have mentioned many times) improves the RSI signal, it works well on price as well for divergences.

 Here's the base, which as of now looks like a huge ascending triangle (1-day chart), there were a couple of moves above resistance that failed, the last one looks to be a definitive head fake move, not just because of the confirmation, but because of how price reacted and where. While this looks bearish, it most likely is the most bullish thing to happen to UNG in many months. I think the AAPL post last night shows clearly that price action is not always what it seems.

 Here's a close up of the daily, note each head fake move raised volume as prices confirmed it was a false move and both sent price quickly down, "From failed moves come fast moves". The break below the bottom of the triangle also is most likely a head fake move, this one bullish, note how volume picks up on the break of support as stops are hit and shorts places, this creates supply at cheap prices that can be accumulated in the wide open with no one questioning the accumulation.

The fact it happened right here also makes sense as it is near the apex of the triangle so the move to break below the triangle doesn't have to be as large being the high to low at the apex is much smaller.

 Money Stream (weekly) is giving a positive signal here at the base, although i'm not sure we need more confirmation...

 The 4 hour 3C chart is mostly in line with the entire move.

 The hourly is leading positive, ewe do se smaller negatives at head fake areas, especially the last one.

 However what we want to watch for is accumulation in to the move lower, this tells us whether it's a true false move, the 2 min chart has remained leading positive.

 The 5 min chart showing the head fake high and a leading positive divergence as well.

The 10 min chart showing the same things as above

So we have pretty good confirmation this is in fact a head fake move, which puts us that much closer to a real Stage 2/Mark up breakout.

Here's where it gets a bit tricky as far as adding. As I always mention, we rarely see "V" shaped reversals, all of these are a process, the sharpest one was the head fake move. It is possible we have a sharper reversal in UNG, but even at that, I would still expect more of a process to unwind first, more of a "U" shape/lateral move, that's where I'd be looking to add, especially if we get a range with leading positive divergences in the range, from there it should be ready to turn up and once again we will have a failed move lead to a fast move (up) that should have enough velocity to break out of the base.

I'll keep an eye on accumulation, but look for price to start to flatten out, that's where our timing will likely be best. You can always phase in to a position as well so long as the risk management plan is done first before the order.