UNG follow up

OK, I'll try to do the last post on UNG some justice. First of all for new members, this is one of my favorite long trades, it's not exactly the asset that is "Most talked about" in the groups, but it is an asset that I believe has a long term secular bull market ahead of it.

Now that Obama has been reelected, I think some of the uncertainty has been removed and UNG will benefit from the push toward Energy self-relaince and clean energy. When we first noticed a change in character, before UNG even made any move up, we knew something was up, but didn't know why. I commonly say that you can have certainty, but you can't have certainty and make money too, by the time you understand why (when you are watching underlying institutional trade) the potential gains have already been made.

However a few things seem obvious. The first came when the EPA put out new rules for any new power plants in the US, the emissions restrictions made only two sources viable for new power, nuclear (which is why we have been in and watching URRE) and Natural Gas. The second event that raised my eyebrows was Bernie's semi-annual Congressional testimony (WE WILL NOT MONETIZE THE DEBT-LOL!!!!); Bernie isn't a specialist on clean energy, but the testimony is like the Superbowl for the financial world. One Congressman asked Bernie if he thought Natural Gas as a part of US energy independence was a good idea!?!?!?! Right? What the heck does Bernie know about that? Nothing, it's totally out of his purview , but the Congressman wasn't asking a question, he was pitching Nat. Gas like a Budweiser commercial during the Superbowl and the tone of Bernie's response acknowledged that.

So our feelings about UNG were based totally on technical concepts, soon after it was on our radar we predicted the downtrend would end and a base would form, that happened...

These are some of the initial observations.

Although there were 3C signals before this, the long term 2 day chart confirmed our suspicions and many members made 20+% in the base alone.

Recently there was a head fake move and a pullback, it's something we had been talking about around the time as necessary for UNG to move from stage 1/ base to stage 2/ mark-up and looking back, it seems it was definitely tied in some part to the presidential elections as the outcome could vastly change the outcome for UNG. For more about the head fake move, the pullback that saw accumulation and yesterday's pullback on the EIA natural gas inventories and what we expect moving forward, see this post from yesterday.

I'm not usually a fan of using leverage like options over a long period, however in this case, I think it makes some sense, especially if during the period of the contract, we can get a stage 2 mark-up as that is what attracts retail to the issue as they think that the breakout and volume surge is smart money buying-it actually is not, smart money has been in for a long time, but that is one of the ways Technical Analysis dogma misunderstands the market.

Yesterday's post linked above explains the correction in UNG and gives an estimate on the time needed to turn back to the trend, it's very short, but still a process and not an event.

The daily chart (using color coded candles representing a modified "Clear Method Trend Analysis") shows a strong trend coming off the 9th of January which saw strong accumulation, this was the pullback from the head fake breakout. Yesterday's decline was on an EIA draw of nat gas for the week. Today's close on a Doji Star candle is a typical reversal candle, but as I said yesterday I think we need a little more of a "U" shape to the reversal (which allows accumulation of the lows); additionally the volume today was not increasing over yesterday's, when we have a reversal candle with increasing volume the probabilities of a successful reversal the next day are extremely high. So in conclusion, I wouldn't be surprised to see another reversal or confirmation candle, maybe a hammer or another star/doji, etc and I'd look for increasing volume so I think there's still plenty of time to get in to the trade.

Momentum is close, but not quite there, MACD (long setting of 26/52/9) should go positive, Stochastics should move clearly out of the 20 area and both RSI and momentum look good, but could look better.


As to today's charts and underlying trade...

 This is the transition from the confirmed downtrend (green) to the left to a positive divergence. Remember I said we needed that one final pullback to push through the base? Well it seems one condition was the presidential election because after that look at the strength in the 3C divergence on a pullback (by the way, this is what we want to buy, a pullback with confirmed accumulation, we don't want to chase trades, but be patient and let them come to us on our terms).

 Here's the loss of momentum, but nothing more than a light relative negative divergence before the Eia report. After the report and the move down in price we see 3C accumulation, in fact we had a draw the previous week as well and UNG rallied, so it seems that this EIA report was going to be used for a pullback and that had been decided days in advance.

Basically I'd like to see a little more "U" shape to price and the divergence to move from the 5 min chart to a 10 or 15 min chart, then I think we are good, but I would have absolutely no problem with entering today either, we are really getting myopic at this point.