Wednesday, November 4, 2009

UNG- So What Gives?

I'm not going to delve into a lot of the factual evidence that natgas is over abundant, over supplied and over sucked out of the ground, nor that demand is down and the need is not there, not the fact that they are shutting down extraction facilities. That should be enough evidence right there that natgas even off of the ridiculous highs of 2007 still may not be priced right. I'm also not going into the contango and forward pricing issues. You'll need to do your own homework there.

You know me, Mr. Manipulation Guy, I think the price of gas and oil are controlled by the futures traders that have no interest in anything but price appreciation. I believe if the market were regulated and only those with a direct interest in the game should be able to buy and sell futures, but of course this would drive price to a natural level and at those levels, companies would surely go bankrupt or struggle to survive IMHO.

$Natgas and $WTIC (Oil) - The price spread between oil and natgas is still well beyond historical norms. Although natgas has done it's part to correct the disparity, I still think oil will need to do most of the work coming down. Notice that natgas has moved back into it's historical channel and that the indicators on this monthly chart are bullish to flat coming off of the lows. The turn in RSI bothers me somewhat.

UNG 60m - This is the most bullish thing I could find regarding the indicators. The divergence in RSI, the embedded S Sto, the completed retracement, nearing the gap fill all got me excited, till I got to the daily chart.

UNG daily chart - Nothing to see here, move along. RSI may be slowing down, but it is not close to bottoming out. It is below 50. The bonus is S Sto is embedding which allows for the possibility of a turn at anytime. This chart is nearing a turn point, but it is not there yet. Volume continues to go away.

UNG weekly chart - This chart confirms the bull move is dead. See the pink trendline on RSI and the red arrows. It continues to beat it's head on that ceiling. Nothing else here in the indicators looks good at all.

So, the 60m chart says go. The daily chart says it could go, but most likely will not for a while. The weekly chart says if it does go it won't go anywhere and it should not be going anywhere anytime soon anyway. The monthly chart (the first natgas chart above) actually looks good except for that hook in RSI. This is possibly a nice big dead cat bounce and might just set a double bottom, but that is still to be seen. If I had to count it (it used to be on the daily chart), I had this as a 5 or a B wave.

9.54 will close the gap.

All of this could be changed in an instant if forward pricing and contango gets out of whack. When that happens, you'll know and you should jump on for the ride. I'm anticipating at least a double bottom or something near there. Any worse and I'd be surprised (not really). Watch the weekly MACD HIST as well. That may be a good signal if it can begin a rise. If that trendline on the weekly gives a major move may be in order, but no danger of that now.

GL trading.

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