UNG Update

I have been trying to get this update out for so long, I decided to just sit down and do it now.

First for newer members, UNG (Natural Gas) has been one of my favorite LONG term primary secular bull trend plays out there, I think it has a lot of upside over the next several years so while we have been trading with and against it and have done well for the most part for well over a year, it's still in a stage 1 base. I don't know how the market knows what they do, but during the 2000 tech meltdown Homebuilders were under about a year and a half of accumulation. AFTER THE TECH REVOLUTION, WHO WOULD HAVE EVER THOUGHT HOUSING WOULD LEAD THE NEXT BULL MARKET?

Someone knew because they were accumulating stocks that I have shown here several times that went on to rally around 2003 and make 2500+% the next few years, BORING, 2-3% a year appreciation, HOUSING!

The UNG/Nat Gas trend looks like it will be more than a primary bull trend, but a secular bull which is much larger.

This was the first thing that grabbed our attention and got us looking at UNG.

 This is a 5-day chart of UNG, apply this concept to any asset in any timeframe you wish, "Changes in character lead to changes in trends" and you can see the change in character in price very clearly above.

This is a 1-day chart, UNG went from stage 4 decline to a large stage 1 base, larger than I initially anticipated.

We DO have members who have been in UNG since our first major buy back in April of 2012 and they have about a 75% gain on the position while it's still in a stage 1 base! I have tried to maintain a core long position there, but have traded in and out based on signals mostly for some +25% gains, a few shorts here and there just because it's one we pay attention to.

 We're in an interesting spot for UNG, I opened a short via DGAZ which has been beaten down pretty good so it's a bit of a dichotomy for me as I want that position to work, but I also love this asset and want to reestablish a full size core long position.

The triangle here looks legitimate, volume is right, size is right, it has a small breakout which I think is Putin/Gazprom related as I can pretty much tell you without reading the news that Russia will cut off gas supply to the Ukraine and the supply that runs through the Ukraine to Europe which depends on Russia for about 1/3rd of their natural gas will likely be shut off to spite the EU/NATO , but be done under the guise of, "The Ukrainians were syphoning off gas meant for Europe so we shut it all down", when in reality it's Russia's trump card to shut the EU up about Putin's ambitions which extend far beyond the Ukraine, apparently right to Finland which a close advisor (former) says Putin feels is Russian territory that was ceded illegally under the czars and he wants "Historical Justice".

This is the weekly 3C chart of the base area with a leading positive divegrence, that's the underlying trend inn UNG over the last few years, once again Wall St. knows something everyone else doesn't just like with housing, they were in place bout 3 years before retail ever caught wind of it. THAT'S HOW FAR OUT THESE GUYS PLAN!

THIS IS THE DAILY 3C CHART, NOTE THE NEGATIVE DIVERGENCE AREN'T VERY STRONG, JUST ENOUGH TO KNOCK PRICE DOWN AND KEEP IT FROM BREAKING OUT SO UNG CAN BE ACCUMULATED AT A LOWER AVERAGE/TARGET PRICE.

Also note the positive divegrence of some size at the lows of "B", this is what I'm always talking about, smart money doesn't chase, they let or make prices come to them.

 The Daily Bollinger Bands are pinching right now indicating a highly directional move is coming soon which the triangle is also implying as it nears its apex, but a strong triangle breaks out about 2/3rds of the way through the pattern and before the apex is formed.

The symmetrical triangle we see right now has no directional bias like an ascending or descending triangle, it depends on the preceding trend for it's directional bias and that trend was up so the triangle is considered a "Consolidation/Continuation" pattern, but these are head fakes often because traders look at a triangle and see a imminent breakout, however most won't enter the position until the breakout on what they call "confirmation", I call it chasing and it usually puts you in a bad position with a lot of risk. 

Point "A" looks like a head fake move with this ""Shooting Star " bearish candle and with all that volume, there's also an element of bearish churning (strong hands handing off shares to weak hands), whenever price moves very little from open to close (small bodied candle) in an area like this on large volume, you have to consider/suspect bearish churning. Point "B" which is today also has a bearish look to the daily candle as the upper wick is quite long meaning higher prices were rejected during the trading day and on increased volume, another sign that is similar to churning, not exactly the same, but still bearish short term, especially as price is trying to break out of the triangle, it should have strong volume and a strong, large bodied candlestick closing near the highs of the day.

This is the intraday action today, I bet you can guess what caused the move just by the time... The EIA Natural Gas inventories which come out at 10:30 a.m. every Thursday, there was obviously a weak build below consensus, I checked Bloomberg and found the following about today's EIA report.

Released On 4/10/2014 10:30:00 AM For wk4/4, 2014 Prior Actual Weekly Change -74 bcf 4 bcf

Highlights The injection season begins! Natural gas in storage rose 4 billion cubic feet in the April 4 week to 826 bcf. An injection of about 10 bcf was expected. The key was an injection of 10BCF was expected and the actual was 4, that sent Nat Gas up, but why didn't it hold the gain and why all the volume on the downside other than the fact that some intraday stops were hit? Lets look closer... First lets look at the big picture...  This is the 4 hour chart, it's obviously strong and in line. This is the 60 min chart. I don't feel good about either of these being I'm not loaded up with UNG longs and I have a DGAZ long (Nat Gas) short on right now in the trading portfolio. However, this is not the end of the story...  On the 30 min chart we are seeing something VERY different in the area of the triangle, a leading negative divegrence which suggest that an upside breakout in the triangle will be a failed head fake move or bull trap, this doesn't effect UNG's long term prospects, but it may be the window we or I was looking for. The 10 min chart's trend is the same, leading negative through the entire triangle, if this was ready for a true breakout it would be accumulated, not distributed. Look closer...  UNG 5 min UNG 3 min trend... Both charts show what looks like VERY clear distribution in to a horrendous miss of consensus today that should have sent UNG sky-rocketting, and we now have a pretty good idea what all that red volume was about, not stop runs, it appears there was a major distribution event in to stronger prices on the initial pop on the weak inventory build, they sold in to higher prices, if they are selling in to higher prices they obviously are not expecting prices to move significantly higher at this time (consider the timeframe as well, it's shorter term, but still in the swing or better category), so UNG may actually be a decent short TRADE, which I'm already neck deep in via long DGAZ, but if it comes up and there's good positioning and good signals, I'll put it out and on any pullback we'll be looking for accumulation to know where we can safely enter UNG long. Finally the intraday action on a 2 min chart, it shows the EXACT same thing. 2 min UNG intraday, distribution in to higher prices and leading negative where the volume really picks up on the downside. So I think we have a pretty good idea of how this VERY obvious triangle is going to resolve, it's a bullish triangle and traders will buy the breakout, but this is what I'm always going on about, Wall St. uses traders' predictability (as this is a century old technical price pattern) against them and in this case, looks to be setting a bull trap which creates downside momentum. The idea would be something like this... The more volume they can get on a breakout, the more likely it is that we are close to the head fake resolving to the downside and since it's a triangle, most stops are right below the upper resistance line of the triangle or just below the apex of the triangle, that means momentum with additional stop selling creating supply and sending prices lower should send UNG lower, I'm just not sure if we are already at that point as volume was up, just not in a huge way and the more bulls they can trap, the stronger the head fake move down will be, "From a failed move comes a fast move". We'll keep an eye on this one to see if we can get a decent trade on the downside, more importantly a good entry on the long side on a pullback, that would be ideal and the charts look like that's a VERY high probability.