UNG Update

I want to show you UNG today, which for newer members is an ETF for Natural Gas. I can honestly tell you that we were long UNG before anyone started talking about the surge in natural gas, in fact UNG has been a core long position, one of only a few and an asset that I expect to be a long term long position.

If I had to pick one long stock for a 401k that I couldn't touch for a year, UNG would probably be it, I believe it will undergo a long term secular trend change from bearish to bullish. Some of our members have already made over +50% in UNG and that's with no leverage and in an asset that is still firmly within a large base, in other words it hasn't even broken out yet to enter stage 2 mark-up where it can start a trend higher.

The key to our uncovering UNG probably a good 6 to 8 months before anyone started talking about Natural Gas was the same thing that got us long in FB after that disastrous IPO, for a huge winning long trade in FB when EVERYONE considered FB the "Most Hated Stock". What was the giveaway that we should be paying attention? Very simple, a subtle change in character of the stock's behavior. "Changes in character precede changes in trends"

There seems to me to be some obvious charm offensive led somewhat ironically, by politicians on Capitol Hill or should I say, "Capital Hill"? Did you know some of the most successful traders in the market are Congressional Staffers? Yep, they have the skinny before anyone except perhaps the "Professional Networks" that they likely feed inside information to, the same kind that is tearing apart the once "Could do now wrong", Stevie Cohen's S.A.C. which BlackRock (their largest investor) recently put in a redemption for all accounts.

I had no idea what would move UNG, I just saw a big base was building and then things started coming out such as the new EPA standard for any new Power Plant's emissions which make anything other than nuclear and Natural gas impossible, no clean coal technology will pass the new standards for new Power Plants. Then during Bernie's Congressional testimony, a Congressman asked Bernie about our Energy policy and if Bernie believed that Natural Gas was a great as the Congressman thought it was. What you have to understand is Bernie is about the last person to know anything about Energy policy and the question was totally off base from the subject matter, however the Congressman had his time to ask a question during one of the most watched events in finance and decided to throw a "Shout Out" to Natural Gas, he wasn't asking a question, he was getting free advertising time.

In addition, Natural gas is seeing more demand, not only as a fuel for trucks and busses (I saw a fleet of UPS/Nat Gas delivery trucks in DC, but soon many think NG cars will be the norm. Also there's a strong push to export NG to countries that will pay multiples of what NG is sold for in the US. On top of all this new demand, the Rig count to produce NG is at an 18 year low.

Recently I moved out of a significant portion of the core long position in UNG as I expected a pullback and wanted to add the shares back at a lower cost basis.

Here's what I said just last Friday in response to a member's question about UNG:

"I'd like to see this chart improve more (lead and move out to longer timeframes). With the last 2-days' range, I'd say before it even makes a move to the upside, it will at least break under the range and shakeout stops, even if for only an hour or two (these moves typically are proportionate to the base area)."

Here's the UNG chart since last Friday and this email...

Above you can see the range/support created last week by the "last two days" I mentioned and today the break under that range that saw increased volume as stops were hit.

So far the 10 min 3C chart for UNG looks good, as I said in the email above, I'd like to see this chart continue to develop with larger divergences moving in to other timeframes or at least strengthen the ones there.

Head fake moves, which this appears to be as I suspected we'd see last week, often occur right before a reversal so I'll be keeping a close eye on UNG to consider adding back the full position size that was scaled back to protect gains.

I'm also interested in two Natural Gas players, CHK which Carl Icahn is involved with and LNG which has the terminals, license and partnerships to begin exporting Nat. Gas to countries that currently pay 2-3 times more than NG in the U.S.

To me LNG looks a bit over-extended and is probably a better candidate to consider as they move closer to the potential start of exporting and as price pulls back a bit.

CHK on the other hand seems to have undergone a decline, a base and looks to be close to a breakout, very similar to UNG itself in that context, right down to the price pattern. I think if we keep an eye on CHK, we can get in at a better price, whether you prefer a company or an ETF is up to you, I kind of think I might consider half and half as 1 position.

Here are the CHK charts.

 The daily chart shows a stage 4 decline followed by what looks like capitulation on volume, note the big head fake move in yellow, that was a 6+% move followed the next day by a -14+% decline, that's volatility as a trend is undergoing the late stages of change.

My custom DeMark inspired Buy/Sell indicator gave several signals, all very close, recently there's a sell signal that hasn't seen much downside.

Here's the 5 day version, so I'm thinking a decent pullback to the <$20 area would be an ideal area to consider a position.

From the 3C chart I think in the near term it's possible if not probable to see a head fake move above the white trendline, you can see obvious distribution on the most recent run up, but in the near term a head fake move would do a lot toward sending CHK to the <$20 level real fast, "From failed moves come fast moves", just look at the head fake move above I mentioned.

The 10 min chart has a positive divergence that has moved closer to in line so over the next couple of weeks, I'd look for CHK around the $23 area, maybe we can hitch-hike a ride down to the $20-ish area and look for a long position somewhere in the area.