UNG Primary Update

We're going to take a look at UNG from MACRO to intraday, yesterday's article posted here last night is further confirmation that something big has been going on in UNG and nearly everyone who has been with us for a year has been involved or is involved with UNG. For those who are newer, UNG in my opinion hasn't even scratched the surface of what is possible so if you think that it is too late to get involved with UNG, I'd say you are mistaken. There is one big caveat with what I just wrote, that is UNG is not the typical trade, whether a quick weekly options trade or a half a year position trade, this is as close to an investment as I have been since I bought Prudhoe Bay Petroleum Trust (BPT) back in 2000 around $11 with a 14% yield on the royalty (like a dividend), at $78 it still carries a heft 12% royalty, although they were suppose to run out of oil around 2010.

This is one of the biggest amateur mistakes I made in selling this for what was a double or triple (it was a solid gain), my Uncle who I told about it, rode it to $90+ and collected that fat royalty every year to boot. This is when I started looking for an answer to stops, especially as they relate to trending trades and read about the "Turtle Traders", famous trend-traders with a real life story that I'm sure "Trading Places' was based on. This is when I came up with my Trend Channel and received my first award for a Technical Indicator, years later Price Headley was using something very much like it, in fact exactly like it, I'm not saying he copied it, but the fact it was exact from the way it measures volatility to the length of volatility it measures was, well uncanny.

I think there's something here for everyone if you apply some of the concepts to your own style and make then your own. Among the concepts in this post:

1) Change of character is a big clue that tells you an asset is about to change trends

2) How far advanced Smart Money's knowledge is regarding the next "IT" asset and how we can identify these subtle hints smart money leaves

3) The Concept of Fractals and Scale

4) Seeing what the crowd missed

5) Confirmation of important signals in underlying trade

6) Entering trades in very difficult places and how that often leads to the best entries with the least risk, although at the time it seems completely counter-intuitive.

7) The concept of the Head-Fake move in everyday trading and in key strategic areas

8) Using volatility as a "Change in character"

9) Using the right tool for the job, whether it be the type of trade or indicator

10) An overall feel for the difference between trading on a retail and institutional scale and how that manifests in the market.

11) The difference between "Strategic" and "tactical"

12) The importance of patience and how you can gain the trust to trust the trade as well as some general lessons in 3C.

 

 First we have a weekly chart of UNG, I almost always look at a weekly chart first, it tells you everything you need to know about the trend and not insignificant intraday or day to day moves, it tells you where opportunities are, where traps are.

We started watching UNG long before most others, in fact I proved that in posting some other large sites that took interest in UNG months after it was on our radar. The ROC of the price trend was one thing that interested me, the volume was another, around 2011 the ROC of price changed, 2012 volume changed.

 A closer look at the weekly reveals the base pattern we have been following.  Large triangles like this ascending triangle are not consolidation triangles, they are almost always bases or tops, depending on the preceding trend.

Pattern mis-identification is one of the biggest mistakes we as traders make and it's almost always due to personal biases, whether they be born of hope, uncertainty or are fear driven. A prime example is a H&S pattern that formed in the SPX from approx. early May to early July, the price pattern was there, but one of the most important things in validating a true H&S pattern from random price movement is volume, volume for this pattern was completely wrong for a H&S top and come late July it was obvious many traders had made a mistake born out of complete laziness or wanting to believe what they wanted and just looked at the information that supported that belief.

Likewise, now many people believe there's a bullish inverse Head and Shoulders bottom in the market (ES particularly), however that belief skips over one of the most important parts in validating such a price pattern, the fact that an inverse H&S bottom is just that, a bottom which means it needs a preceding downtrend which is not there. I'm not saying there's not an important trendline that should be respected, but it could be like a H&S top coming at the bottom of a long downtrend, it can't be a top.

Volume is even more important is identifying a H&S bottom (inverse H&S) than it is a top.

 This is a daily chart of Don Worden's MoneyStream, many don't know that Don is the grandfather of technical indicators tracking moneyflow, he started with Tick volume, it just so happens someone else published on the subject before him, but he was selling indicators to major Wall Street firms decades ago and is one of the pioneers of money flow analysis. MoneyStream above is similar to 3C is the concept. From left to right we have a small (actually almost 2 month) daily negative divergence and the a trend lower that is confirmed by MS (at the green arrows). As UNG starts to base, MS goes in to a leading positive divergence and remains in one from May 2012 to present with a small negative divergence / Head Fake move around November of 2012 that sends UNG below the triangle pattern, this alone is a significant move as most technical traders see the triangle as moot now, but this is part of the difference between institutional positions ad retail, we can pick up a full posiiton in a matter of minutes.  The accumulation of home-builders during the 2000 Tech crash took a year and a half, this was well before the bubble in housing started AND AFTER THE ADVENT OF THE INTERNET WHO WOULD HAVE EVER GUESSED HOUSING WOULD LEAD THE NEXT BULL MARKET? Somehow smart money knew years in advance and in some cases made +2500% on large trades in homebuilders, but it took them nearly 2 years to put that position together.

Think of it this way, if we are trading a stock that has an average volume of 20,000 shares a day and we place a buy order of 1,000 shares all at once, do you think we will get a reasonable fill or raked over the coals? The answer is raked over the coals, thus we have to break the order up in to smaller pieces and perhaps buy 0ver several days, always trying to buy near the lows and if we are confident in the trade, a volume spike cause by stops getting hit is a prime area for us to fill our trade not only at a good price, but with plenty of supply so we get  decent fill. Now imagine these positions are tens of millions of shares in size.

 The weekly chart of Money Stream will not have as much detail, but the trends are very clear, confirmation and a positive divergence.

 Using the weekly 3C chart as well as a long period TSV we can get nearly exactly the same signal as MS, this is good confirmation and we can have very high confidence that a base is under construction in UNG.

 I had to use a VERY wide Trend Channel to capture the entire UNG trend, in the bottom window is a 20-day ATR, you can see it is falling with the trend which makes sense as the price falls, the range will also fall, however one of the changes in character here is at the orange arrow when price drops below the trend channel, I've done a lot of testing to decide whether it's best to take profits on these extreme moves in price, the results are mixed, but more often than not, just like the blowout of a Bollinger Band, a Linear Regression Channel or any other Channel (A Channel Buster), you are more often than not getting advanced warning or a hint that something is about to change. Note during the base area volatility is fairly low and is moving in sync with the price pattern in which the triangle comes to an apex as volatility comes to a diminishing low. High Volatility right before stage 4 (decline) ends is very common.

 Here's a closer look at the same channel with the blowout in orange, there's a bullish candlestick reversal pattern in whit, this gains much more credibility on a weekly chart vs. a daily chart. The actual stop out on a 5-day closing basis is seen at the red arrow.

 We've already seen daily and weekly positive divergences at the base, this is a (still very respectable) 4 hour chart with the same divergence, but more detail, it seems right at the apex where technical traders would expect UNG to break out to stage 2 (as they treat the large ascending triangle as if it were the same as a smaller consolidation triangle typically of about 2 weeks) we got a head fake move instead which we were able to confirm at the time, it was not a breakout, but what I suspected back then would be a pullback to accumulate more shares and create a stronger push through resistance when the time came, so far we have seen that accumulation on the pullback rather than some other price movement and we have a new leading positive divergence, this leads me to suspect UNG will likely breakout on the next test of resistance.

 The 60 min chart shows the same head fake move at the yellow arrow/box and accumulation in to the pullback as expected the same time that move failed and was identified as a false move (never meant to breakout, only to lead others to chase it in that belief).

*This may be the most important development recently for UNG and the move to stage 2 markup-or the trend/easy money.

Now with Shell having come out and said "Natural Gas could be the #1 Fuel Source", it makes stage 2 mark up incredibly easy as many traders will be more than happy to chase the breakout, which is exactly what a stage 2 breakout to mark-up needs, high volume which traders assume is smart money buying, but as we have known for a year, smart money has been in for a long time and at VERY favorable prices.

 Locally, UNG's head fake move is seen on this 10 min chart with accumulation at the lows.

 The same 10 min chart today went negative at the highs and pulled back to fill the gap, remember a new divergence, like a positive divergence starting after filling the gap would start on the fastest timeframe (1 min) and if strong enough, work its way through the longer timeframes until it turned this chart positive locally.

 Here on the 1 min chart we see that's exactly what happened, the 1 min was negative in to the intraday highs, but as soon as the gap was filled, it went positive and then leading positive, now it must migrate through the nxt timeframes, 2, 3,5 and 10 mins.

While UNG didn't have much time to work on that migration as the 1 min chart went positive around 2:45 p.m., it did make it far enough along to put the 3 min chart in line, so the move so far is of to a good start.

I can't express how big yesterday's news was from Shell, I mentioned a Congressman asking Bernie in Congressional testimony his opinion of Natural Gas as a solution to America's Energy independence, I was as baffled by the question as Bernie who knew this was not his field of expertise, the point was the Congressman was using what is akin to the Super Bowl in the financial world to get in a free advertisement for Natural Gas.

Shortly thereafter the EPA set new emission standards for all new US power plants, these standards rule out clean coal and leave only Natural Gas and Nuclear.

The stage is set for UNG to become a monster "secular" long position, we are in VERY early and at some of the best prices with the least risk, I think this could be the 7 or 10-multi-bagger that use to be such a popular phrase, given enough time and patience, but they will try to steal your shares on the cheap-make sure your risk management is responsible, but also wide enough to allow for the shenanigans Wall St. will pull as they already have recently.

 

Futures / FX Update

This is not a wrap of the day's events, it's an update.

While I'm finishing a UNG post, which is a bit more involved than most because as we long suspected and received confirmation last night, Natural Gas is apparently going to be one of the main players in Energy in the years moving forward according to Shell, in fact potentially the #1 Energy source, we are talking about a secular change that may be one of the biggest ever, perhaps bigger than the Internet and the Tech revolution. Decades, nearly Centuries of reliance on oil as our primary power source is about to change. We knew there was something big happening with UNG and had many hints from government along the way, but this is even bigger than I imagined so I think the piece is worth the time it takes to write.

In the mean time, here's what's going on with futures and FX pairs

 ES(SPX Futures) 1 min has had a solidly negative trend today, this reminds me a little of the days of persistent negative divergences that preceded major shifts in the market, both bearish and bullish although we saw 2 bearish turns and 1 bullish. However it is not the same thing. The reason I tell you that the most gravitational pull on ay stock on any given day is going to be the market first, the Industry group (rotation) second and lastly the stock itself (of course there are exceptions such as stock specific news, earnings, etc) is because the market largely moves together as one, there are differences in relative performance, but the market herds as do the participants. What I see above looks to me like the Dow close the headlines needed as talked about late last week and many times on Friday, the market in essence was pegged for a Dow close at new highs rather than an intraday move to new highs, but as it was, it looks lie distribution was fairly consistent throughout the day and why not? Prices are stable, they weren't likely to move due to the need for the headline and this is the environment we most often see distribution and accumulation in to. The late day positive divergence looks to now be fading as the after hours in the red box shows a picture perfect "divergence".

 ES 5 min is in a relative negative divergence, we've had these work fine with the weekly options trades, in fact we've has smaller ones work well. again the 5 min chart is moving to the downside (3c) in AH.

 1 min NASDAQ futures (NQ) saw the same type of action today, there was the afternoon positive divergence mentioned in a Futures market update at 3:09. Again, the AH trade in AH in the red box is a picture perfect example of a divergence.

 The 5 min NQ chart is exactly what we have been looking for to enter Puts, the market up, a strong negative 5 min divergence, this one leading negative strongly. As mentioned yesterday, I get the feeling volatility is about to rise, that doesn't mean we will be trapped in a range, but I do think it is more likely volatility rises than shrinks with a trend.

As far as FX, there weren't too many moves of much importance as far as violating the pattern of lower highs/lower lows, the AUD/JPY was one of the biggest movers, it also is one of the only FX pairs with a clear negative divergence.

 EUR/USD once again seems to have some floor, temporary or otherwise at $1.30, it's too early to say if there's intervention to hold this floor t $1.30, but we saw this last week on Friday and yesterday, technically though the pair hasn't done anything of note.

 The EUR/JPY has been pretty flat so far this week, coming off a move late last week.

 The exact same could be said of the USD/JPY.

While the AUD/JPY has not crossed or broken any trend markers, it was one of the pairs that has seen some movement this week, it is also, as mentioned late last night, one of the only pairs with a clear negative divergence.

 Above is the AUD/JPY, when price moves up, the AUD is gaining in value while the Yen is sinking in value vs each other, this is generally bullish, but the negative divergence suggests that a reversal of this move is likely. It's hard to get a lot of confirmation of the FX pairs, unlike with equities, but I did, if 3C is correct here than we should see the AUD by itself with a negative divergence and the JPY (Yen) with a positive divergence, I checked the futures of each.

 This is the AUD futures (AUD only) and as the FX pair chart above suggests, the AUD futures themselves have the same exact signal or confirmation.

To further confirm this the JPY should have a positive divergence.

Here's the Yen with a positive divergence so we have 3 different charts, 1 an FX pair and two individual futures for the single currencies, all agree and confirm each other. Should the divergence cause the reversal on the AUD to the downside and JPY to the upside this will put negative/bearish pressure on the stock market.

More coming as well as UNG.

QQQ Weekly Puts

I'm getting a lot of emails asking whether this position entered today is still open or am I leaving it open, I did think about taking profits on it earlier as they were 40+% for today alone, but I decided to leave them open.

The EOD bounce I saw earlier and the small positive intraday divergence was posted in the last Futures update on the NQ 1 min chart

 The overall 1 min trend really kind of runs over the intraday positive near the EOD and like I said, they'll want the Dow at headline levels on the close.

The 5 min NQ chart has continued to fall apart so these are the signals that have been calling successful puts, I see no reason to close it.

Financials looking Rickety Up Here

I already have a position opened in FAZ (3x short financials), whether you prefer the leverage or not, Financials don't look bad here as a short, there's a shakeout move today and a stop can be put a bit above the intraday highs from today.

I wouldn't use options, I'd look at this as more of a position trade.

 2 min, looks like this gap has been under distribution all day

 10 min

 30 min, it's not the first time a leading negative divergence jolted financials, this position however (compared to price) is deeper leading negative.

 The 2 hour chart

And the Trend Channel, I've seen very few trends worth staying in once the channel is stopped out as it was at the red arrow, it's mostly just volatile chop for a bit before reversing trend, these are the few percent that are the riskiest to try to get.

Futures Update

The market feels a bit dull this afternoon, I like to compare a dull market to, "The kids a little too quiet in the room next door". Usually there's something going on and you really don't want to be caught off guard.

Here's the ES and NQ update.

 ES 1 min has a small positive divergence, but the trend today is pretty darn clear.

 ES 5 min -the green line in the 9:30 open, a negative divergence.

 NQ 1 min negative

NQ 5 min also negative.

They Need the Dow Closing High

That's what I said on Friday and Friday would have been a perfect day because the news of "Dow makes all time new "nominal" high" would be all over the news over the weekend and retail would be placing their orders Sunday night and Monday morning before heading off to work, without the nightly news headline, it's simply not as effective.

However looking at the DIA, it doesn't look like it'd going to hold.

 The 1 min trend, no confirmation at all today, similar to yesterday.

 2 min chart

 3 min chart

 10 min chart

Most importantly the 60 min chart.

TECS Long

This isn't one I'm taking jut because of the number and correlation of positions already, but if you like Tech short, TECS seems to be in a good place right here to take a look at going long the leveraged ETF, remember that it is leveraged 3x when you look at your risk management.

I'll try to get some charts up shortly.

Went w/ QQQ March 8th $69 Weekly Put

One of several very nasty divergences in the Q's-2 min leading negative

Quick NASDAQ Update / Trade

The NQ 5 min chart is starting to move down, not that it needed to, it was already at a large negative divergence.


I think in addition to the April monthlies, I'm going to open a small weekly Put QQQ position, I'm not sure about the strike, probably $69

GLD Add-To or New Position

If you like the GLD trade idea, whether it be the April $150 calls or just GLD long, this looks to be a good place to either start a new position or add to an existing one.

 Yesterday I pointed out the rounding base and said it was most likely at least more than half way done, the larger the base, the larger the move it can support and we've had some strong positive divergences in long timeframes that seem to suggest a significant move up in gold.

 The 2 min chart's trend

 2 min chart intraday looks good here for initiating a trade or adding to an existing one.

 The 3 min chart also looks good here intraday

There are other charts that look good as well, however this is a long term 60 min chart that is positive right where the rounding base area is.

Volatility Charts

The 3 min charts have been the standouts in volatility lately, as I said, this makes the 3rd move, I was looking at something else when a member, luckily pointed it out.

Here's what today's move looks like.

 VXX Short Term VIX Futures and a 3 min leading positive divergence

 UVXY a leveraged version of the VXX above with a very similar 3 min leading positive divergence.

XIV which is the daily inverse short term VXX, the exact opposite of VXX with a leading negative 3 min divergence.

Here's the interesting part, all 3 of these ETN/ETFs are moving according to the VIX futures, whether at a 1:1 or  leveraged move or even an opposite move, but they are managed to reflect the price changes in the VIX futures, that's all done by the ETF managers, however 3C works by showing demand which is something the ETF managers can't create.

Whether the VXX traded 100 shares all day or 100 million, the percentage move would be in line with the underlying VIX futures percentage move no matter how much or how little demand there is.

This is why I find it interesting that for the 3rd time, all 3 of these ETN/ETFs have had the exact same signal, when the price percentage move is not what 3C tracks, but the money flow or demand which is irrelevant to percentage gains in these assets like most ETFs. When there's a 3 min leading positive in the two longs and a 3 min leading negative in the inverse, that is because there's a coordinated move coming from smart money, selling the inverse and buying the long volatility.

Volatility is making another large move

This is the 3rd one I believe, I'll get some charts up of what's going on there with these very positive signals. In the meantime, I think you could consider UVXT or VXX as a short term (long) trading vehicle or at least what the underlying moves and probably the price moves in volatility mean for the market.

QQQ / NQ charts

 This is what I was hoping to see, the NASDAQ futures move back up to at least the green arrow while the 3C chart makes a new low which so far has happened. My best guess from here would be a range for a little while with some volatility running stops on either side of the range.

 The 5 min NASDAQ Futures is not moving down like I wanted to see, but it's not making any upside gains either, I'd rather not get stuck taking a put position in a slow lateral drift.

 The QQQ 1 min is really about the intraday, but I also wanted to give you some sense of where it is within the trend, especially on a move like this in price where confirmation becomes important and the first and easiest confirmation if it is there is found on the 1 min chart, which it is not here.

 Recently the 2 min chart has picked up downside steam, remember that divergences migrate from short timeframes to longer ones if they are strong enough.

 The 3 min chart showing the same kind of downside momentum as the Q's get stuck in some lateral movement or the start or a possible range.

The 5 min is just seeing some intraday momentum as well, I also wanted to give you some idea of where it was in the recent trend.