UNG is a long time favorite that I think will enter a secular bull market and has been in the process of carving out a long base that will support such a move (multiple years).
However, it looked very much to me like UNG would pullback, at first not very sharp, but then it looked like it would be larger so DGAZ was entered as a way to play the pullback in UNG as it is the inverse or 3x leveraged inverse Natural Gas. At first DGAZ was down pretty well in to the mid-teens, but the signals still remained strong as UNG chopped volatility in a H&S top, now DGAZ is at a +15% gain in the trading portfolio and I think for the most part, the volatile chop I said we may see for a few more days, is likely over as UNG has broken decisively under the H&S top.
This is the UNG daily chart and the little H&S top is clear. I talked earlier about H&S tops and we actually got good positioning on this one. As far as the head fake move associated with a H&S top, I think this is more of a pullback in UNG, while the typical H&S shakeout could occur, I put the probabilities pretty low and even if it did, it wouldn't change the fact UNG would still be expected to see the downside move (the head fake is just a shakeout, not a change in the underlying tend).
I'm really not worried about a shakeout here.
This is a wider view of UNG's total base, the initial changes in character in 2012 that caught our attention and a much bigger base than anticipated, but in the long run that makes this a much more interesting asset. As for the current action, to put it in perspective, it's to the far right in that little yellow box so it's not anything that I'd consider to be trend changing, in fact it may turn out to be a timing flag that is trend changing in a positive way for UNG after this pullback completes.
This is the 60 min chart of UNG, you can see accumulation and a 3C confirmed uptrend before 3C went negative in to the head of the H&S top, but there were warning signs before that like the ROC in price and 3C making a lower low and breaking upside confirmation before the first clear divergence was in place.
On an intraday 1 min trend, you can see there's excellent confirmation, that's why I hung on to DGAZ like a pit bull. As you saw yesterday, I'll move out of a position at a loss and take my lumps (AAPL was a 25+% loss, luckily offset by the SLV put's gains ), but when I have good reason, I'll stick around and this was part of good reason. You can see the top of the right shoulder and distribution there.
There's a lot of confirmation of current trends in both UNG and DGAZ.
The confirmation and leading on UNG go out further, but I think the 10 min chart is a good representation of the mechanics of distribution in a H&S top which can include short selling.
The yellow trendline would be the neck line for UNG.
This is the best representation of DGAZ on a 15 min chart, note distribution, confirmation of the downtrend and accumulation of an inverse H&S base. Also note the leading positive divegrence.
Initially I though I had an idea of where the pullback would be, but things have changed and I'm not sure.
The price implied target for DGAZ is $12.50, but considering the size of the divergence, I think it is significantly more so we'll let 3C tell us when it's time to get out.
I will likely not be trading around the position, even if I know there's a likely countertrend correction, I want to just let this trade work and not kill gains with transaction costs and perhaps miss parts of the gains.
If something really changes on the charts, well then I'll let you know.
So far, so good, I think it was worth the wait.
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