UNG / DGAZ Update

As I have been running through our watchlists I came across UNG which has not been updated for a while.

UNG or rather Natural Gas as a primary trend (long term) trade looks like it will enter a secular bull market, which is not surprising considering how long we have been following it. DGAZ is a 3x leveraged short Nat Gas ETF that we opened a long position in for an expected Natural Gas (UNG) pullback that never materialized.

UNG is in an interesting place right now and before it breaks out of its multi-year stage 1 base, I'd like to move the long to a Nat Gas stock, but one that is primarily nat gas, not all kinds of energy and/or infrastructure that doesn't relate to Nat Gas and I'm still looking around at a few ideas to see which might be the best play as we move closer to a stage 2 bull market primary trend.

For now, I suspected UNG was going to pullback and left the DGAZ position open to see how far that position will come back to us (trading position).

Here are the charts and just like the recent exit from MCP on a breakout from a triangle, UNG also flashed very similar warning signs as our "Head Fake" concept, which occurs just before a reversal or breakout, breakdown, etc (just say a significant move). Because UNG did not follow our concept which is really just born out of Technical Analysis being so predictable that it is used against its practitioners, a downside reversal there became much higher probability.


Charts...

 Long term it's not only the base, but the 3C trend that I like, you can see why we have been interested in Nat Gas for sometime, there are also regulatory reasons that were passed not too long ago that gives Nat Gas a huge edge over coal in the production of any new US power-plants.

 This daily chart of UNG shows a symmetrical triangle, it has no directional bias except for the preceding trend as it is only a consolidation/continuation pattern. Because the preceding trend was up, Technical Traders expect the triangle to breakout to the upside and put in the next leg higher which should be roughly the same as the preceding leg in to the triangle, thus the description, "Consolidation...Continuation" pattern.

However, from our head fake concept which is something we see at least 80+% of the time in situations like this in any timeframe and any asset, BEFORE the reversal , breakout or significant move comes, we should have seen a downside run of the stops or a false breakdown below the triangle BEFORE it broke out to the upside. This means the upside breakout is suspicious being this concept DID NOT occur.

Otherwise, the triangle is a perfect technical triangle with a preceding up trend, lower volume as the triangle matures, the price pattern is perfect.

Now you can see the upside breakout did fail as price crosses back below the apex of the triangle, however, we had a heads up this was likely to occur as far back as  far back as April 10th as this chart was posted in the post, UNG Update

This chart is from the April 10th update linked above with the following comments below it...

"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."

 Here's the current 30 min chart with not only the negative within the triangle, but a leading negative divegrence on the breakout of the triangle, the "Failed breakout" we anticipated.

This also suggests that while there may be some bouncing along the way, UNG has more downside to go.

This is the 15 min chart with the triangle in the area of the white arrow and a leading negative divegrence on the breakout from the triangle, a failed breakout as it was distributed.

The lack of the head fake was the first hint, the 3C charts were confirming and the actual move confirmed.

As for DGAZ, the 3x leveraged inverse of UNG or Nat. Gas...

Here's a leading positive 30 min chart confirming UNG's leading negative so upside in DGAZ looks like it has more to go, actually as if it just got started.

This is the DGAZ 15 min chart positive leading as well

And the 10 min chart.

As I said, we will get some bouncing around which is normal as almost nothing in the market moves in a straight line...

 The DGAZ 1 min chart is leading negative suggesting a near term pullback, maybe some gap filling or just consolidating.

The 3 min chart is still largely in line so we'll see what a pullback looks like, there may be a trade opportunity in DGAZ for those interested, just send me an email if you are interested, but the larger opportunity will be to enter a Nat Gas (UNG) long on the pullback as soon as we start seeing accumulation of the move lower.