UNG Update

I know several of you are still very interested in UNG positions and I suspect you'll have another chance at a pullback. UNG made a classic head fake move, one we identified weeks before it happened (Sept. 29th), this was a great area to pick up UNG or the 3x leveraged UGAZ long. After the 11/6 breakout, the chances of a pullback were very high which was another great entry area. UNG was covered on November 6th with Fundamentals as well in UNG Fundamentals (Oil-WTI as well), this was the day of the breakout on a strong +5.46% move. The post ended...


"And on the breakout, thus far, as parabolic as today's move is,  we have confirmation of the trend.

If there's to be a pullback (in case you want to buy UNG), I don't think it's quite here and I personally would not chase this move, but wait for a pullback.

We want to watch for the price rate of change and look for it to start falling off and any lateral consolidation, that's where we may get a decent high probability pullback."

And... One of the last major UNG Updates from November 10th, UNG Update started with the following...

"After last Thursday's Breakout move in UNG, my preference as always is not to chase price, but let it come to you on your terms in which you can confirm the trade's strength, get a better entry and lower risk, it just requires patience and occasionally passing on some trades you are interested in."

Without even using 3C, if you applied the Price Rate of Change, you not only saw the probability of a pullback, but where it ended and where the buy area would have been...

And like clockwork, UNG gave us a beautiful pullback to range support. Here's a quick overview of UNG events.

After the failed breakout on Sept. 29th which we said on that day, "If t fails, it will move under the range to gather momentum" which it did and broke out at #4 which is the current breakout and pullback being discussed above, the pullback at #5.

If you used Rate of Change, one of the simplest and most overlooked indicators with incredible value, as I mentioned above you could use this alone to determine the pullback buy area.

"We want to watch for the price rate of change and look for it to start falling off and any lateral consolidation, that's where we may get a decent high probability pullback." 11/6/2014

Here's UNG with ROC attached to price, note the negative ROC divegrence at the breakout and days just after leading to the lower end of the range where a positive momentum divergence was put in, that was your buy signal.

Some stock charting software only lets you attach ROC as a Child Indicator to other indicators and not price, in this case attach a 1 bar moving average which is no averaging at all, but price exactly as it is and make it invisible, if you can't make it invisible using line prices will cover the moving average as they'll be exactly the same or if using bar/candlesticks, you'll have a small line through price, not distracting at all as if follow price. Attach ROC to the 1-bar moving average, that's the way around programs that won't allow you to attach it to price directly.

 So we are looking for a pullback in UNG once again, the same methods can be used, however when looking at the big picture, I do believe Natural Gas will enter a secular bull market, meaning a long term bull market and likely be one of the leaders while most stocks are in pain. In that context, UNG is still exceptionally low in its base.

The charts now suggest a resistance area has been hit, remember tomorrow morning the EIA releases Natural Gas inventories...

 Again our map of events. The large triangle consolidation from February to late June showed strong signals of a deep pullback in UNG, thus some of the DGAZ (3x short UNG) trades at the time, that's at the red arrow as price finally breaks from the large range.

UNG formed a new lateral or rectangle range, at #1 was the breakout attempt of 9/29 which was legitimate, but was unsure whether it would make it. In 9/29's update, UNG / UGAZ Follow Up, it was clear if he breakout did not succeed with a strong close and higher volume that day, we'd see a move below the range, similar to the Channel Buster concept, but to accumulate and set a bear trap to power through a real breakout.

From that post, UNG / UGAZ Follow Up (so you understand the psychology of these types of moves)...

"There is profit taking on the move as it is very parabolic which I wish it weren't, as impressive as they look, I don't trust parabolic moves.... Volume increasing at the close and holding the breakout would go a long way toward confirming this breakout and of course the one thing the market can't do on the upside (but does easily on the downside) is follow through with additional gains the next day or within the next week as they often will consolidate a bit after a breakout.

Here's the range and if this weren't a commodity, I'd say a downside head fake/stop run below support would be extremely high probability, I simply had no evidence that this was any probability as of the 24th and still don't unless this breakout fails"

 This is what happened after that breakout failed, a move below the range, but again price is deceptive. We were able to predict this as a probability weeks before if the breakout didn't make it, the reason is not UNG weakness, but a chance to accumulate UNG at lower prices, build a base, trap shorts and then use that to squeeze them and create the breakout that September 29th couldn't pull off on it's own. We have seen numerous examples of this and covered them including in XLF recently (posted).

Right now the last pivot high saw minor distribution on a 15 min chart, but as we approach the same resistance level, 3C is not confirming, suggesting all of the gaps recently made below, are likely to be filled in a pullback from here.

I still have a UGAZ (3x long UNG) position that I'm treating as a core long position and don't intend at this time to try to trade around it, right now it's at over a +28% gain...

At current prices it is at a +32% gain, but even on a pullback I intend to leave this in place and not try to get too fancy unless I see strong reason to abandon the position.

 The short term 3 min chart shows distribution at the most recent move up today and at the last pivot high, forming a resistance zone around a psychological magnet, $23.50.

The 2 min chart shows the accumulation from the last pivot high's decline and this run higher, but it too is showing distribution, not heavy, but on the scale of a pullback as there are a couple of gaps below.

 And the 1 min showing the same accumulation and short term distribution. Again, these are short term signals in line with a pullback from a resistance area, not anything wrong with UNG in a larger sense.

Just as confirmation, I checked on Nat. Gas futures as well and found the same...

 60 min chart showing the head fake (under the range) accumulation in large size and breakout, this is in good shape and mostly in line, however...

The shorter term 15 min chart shows a negative divergence at the same place as the UNG charts above so I suspect those of you looking for a UNG long will get another chance, just remember in terms of the big picture, we are virtually at the lows, when looking back a year from now, I doubt you'll even be able to distinguish these pullback areas.

Good luck!