UNG Time!

Three charts; 60m, Daily and Weekly with articles and commentary from yours truly.

The links to each chart are above in the time frames.

Let's start with the additional share issue from Seeking Alpha today - Natural Gas ETF Awaits New Shares as Prices Fall. If you just think UNG is a normal ETF, you need to read this. "The $4.6 billion fund made 300 million new shares available May 6, which grew to 347.4 million shares, and ran out on July 7. The Securities and Exchange Commission is deciding whether to approve 1 billion extra shares." That is ONE Billion extra shares with a B.

What are some of the issues facing UNG and natural gas. From the same article, "Stockpiles of the fuel increased 90 billion cubic feet in the week ending on July 10, hitting 2,889 trillion cubic feet, a 15 year high. Demand by factories, steel mills and chemical plants, which make up 29% of U.S. demand, dropped 13% in 2009’s first 4 months year-over-year."

Further issues are discussed in Econbrowser's article Natural gas and oil prices. "Natural gas prices have been pummeled by over-supply and weak demand, cutting the national drill rig count in half in the past year. Meanwhile, monstrous initial production rates in non-traditional shale plays have added to price pressure, as producers fight to hold the terms of their expensive leases in boomtowns....Now, British Columbia's Horn River Basin might be added to the list, with the help of behemoth ExxonMobil (XOM) reportedly coming up with initial rates on early test wells to the tune of 16- to 18-million cubic feet a day.... That is double the rate of a really good well and in line with the Haynesville, in Louisiana, which may hold some 250 trillion cubic feet of recoverable national gas, enough to satisfy domestic demand for a decade."

Want to know what drives the price action in UNG? Contango! "Rolling hurts performance when the current contract is worth less than the next month, known as contango. The natural gas market has been in contango 94 percent of the time since the fund started in April 2007, compared with 78 percent since April 1990. Contango doesn’t matter as much when prices rise. Gas cost $7.50 when the fund debuted and increased 81 percent to a 2 1/2- year peak of $13.58 on July 3, 2008. The fund gained 25 percent during that time, besting the Standard & Poor’s 500 Index, which fell 14 percent."

Bloomberg has Natural Gas ETF Down More Than Fuel as Fund Sells Out (Update2) where you learn, "“The amount of interest in this fund is a surprise given the trend in gas is down and not looking to change any time soon,” said Tom Orr, the director of research for Weeden & Co. LP, a Greenwich, Connecticut, securities brokerage, in a telephone interview. He predicted natural gas, this year’s worst performing major commodity, will fall below $3 per million British thermal units next month, from $3.689 today, and rise to $4 in the fourth quarter."

I did not discuss the relationship between the price of oil and nat gas (it is covered in detail in the Econobrowser article). You should read it. Bottom line is the relationship ratio is not at historical norms that will require the prices to become closer in relation to each other. Given my Oil Up Or Down post below, I believe the price of oil falling will take care of the majority of this correction much more than nat gas rising.

So all of you who think UNG is a bargain and do not understand what is happening behind the ETF should be pretty surprised right now. The price is in contango now. This means there is no fundamental reason for the ETF to be rising other than speculation. There is no demand. Rigs are shut down. There is a serious supply glut. Shall I continue? Why is there demand for a Billion new shares? I can't tell you. Maybe it has something to do with Cap and Trade and the fact that nat gas is more environmentally friendly and cheaper than oil.

Lets get to the chart - I chose the 60m because it gives the best near term picture of what is going on. There was a nice triangle that has developed into a falling wedge. I do believe this is part of the bottoming process. I am going to stick with my thoughts that UNG is forming an MA pattern as mentioned before in previous UNG posts. The rising wedge in red should generate a bull flag and alter the shape of the rist to another wedge that will lead to the end of the rise.

I had previously (now deleted) had the triangle breaking down to 9.50 (width of the trianle from the breakdown point). I am not ruling out the possibility of a backtest of the triangle BD line and then a move lower. I missed the small H&S formation at the bottom and was way to bearish on UNG. The indicators turned on me unexpectedly and I missed it. This is why I am laying out all the scenarios I can see.

The annotations are in the chart. Based on the indicators I expect near term trend to continue. The 60m indicators are topping out and setting nice negative divergences. They will embed as the dailys are still in bull mode. The weeklys look strong as well. Actually UNG is set up a lot like SPX had been about a week ago. Look for the dailys to top out and set nice divergences on the weeklys for the nexy fall to what I think will be a lower low.

If UNG takes out the upper wedge line I would be surprised given the fibs, triangle apex, resistance and trendlines. Then again, greed and speculation might allow it to grow to a double top near 16.25, but I do not see it. I do expect another touch of the lower blue trendline for a possible ultimate bottom, but given my beliefs in the prospect for a continued depression (is is no longer a recession IMO) then demand for nat gas should remain low and supplies high. Not a great environment for growth. Oh, and I would think hard about dilution if a Billion additional shares are released, that might effect price just a little bit.

I hope this helps. GL trading.

We Better Turn Soon - Or Else Something Is Really Wrong

NO! I am not showing that it is OVER, but to those that have been comparing "this bottom to that bottom" blah, blah, blah sure looks like you can make a great case that the bottom is in looking at the monthly chart.

Point of this is with the dailys and 60m topping out and the weeklys beginning to roll over, then the trendlines on the monthly indicators just may hold. It is gonna take some serious whipsaws in some of these indicators to make the turn in time. The VIX falling wedge ending pattern would confirm the turnaround suspicions as well.

(Disclosure - GS and the manipulators will take the market wherever they want to and TA nor EWT nor fundamentals works anymore so all this might not mean jack. Also - my target for "option 1" call looks like total crap on this chart. Not giving up on it yet. Note GS came out with a target of 1060 today for SPX - Uh, Shanky has been at 1050 for quite some time now as his target. First MW copying my shit and now GS? This is a great compliment and to have "THE" market manipulator agree with my target is quite the compliment - especially when I was over a month ahead of their call.)

For those asking for a UNG update, I have updated charts, but have not come to any definitive conclusions. I did find this interesting article on nat gas and oil prices. I'll post on UNG soon.

Still digesting comments on the new look. I'm not all that stoked about it either. Might change again soon. I mainly want something wider than the old format. If anyone would like to send me a suggestion it would be appreciated - email in top right.

Still struggling with SC support to get the new computer to allow me to annotate charts, so my time to update charts has become severely limited. I'm not happy. Sorry.

Thanks for the views and comments. GL trading!

Chart Link For better Viewing


Chart Link For better Viewing

Let's Bang (on) Meredith

All pile on. Make it a gang bang. MW made a great call today and I believe she will be right on both counts. The up part is the easy call. How the fuck GS is gonna fall will be the miracle part. The only problem I have with her speaking this way is that she gave CNBS a shit pot load of green shoot fertilizer to spew from their mountain top that will be Crameresque (misleading) to the general public.

First I'll refer you to a meaningless and dry post from the WSJ covering her statements on CNBS today. In Analyst Meredith Whitney Bullish on Goldman you get, "However, Ms. Whitney said her bullish view of Goldman is rooted in her overall bearish outlook for the U.S. economy and other U.S. financial companies. During an interview on the financial network CNBC on Monday morning, she said the U.S. unemployment rate could reach 13% and remain elevated beyond 2010, and that most banks likely aren't prepared for prolonged joblessness at that level. The U.S. unemployment rate reached 9.5% in June. She said that bank stocks will be good buys in the short-term due to a robust mortgage business, but that the longer-term outlook for most banks was grim."

Fing brilliant! It is gonna go up and then down, so we are going to put a buy rating on GS. WTF is that all about? Well, dear readers I actually agree. We're talking about Government Sachs. The most insider oriented brokerage (oops - bank holding company) on the planet. She's right on the up first. How much fing money do you think GS made using our tax money in conjunction with their "supposed" market manipulation software? How have GS's earning been effected thru accounting manipulation allowing "specific" assets to be placed off balance sheets? How bout that "lost" quarter? She's exactly right. The government nor the fed will never cut off their right arm, not the company that supplies a vast majority of their higher placed employees.

Denninger takes some shots at MW in Merideth Whitney: The Internet NEVER SLEEPS. For once I have to agree to disagree with my buddy Karl. Karl is right in his argument, but he totally misses the point (as most P3ers do regularly and I did for the longest time as well). It is not time yet for the great collapse. The P3. The big crap. The monster fucking we'll all take when the market really shits on its self. "Our government's policy of looking the other way on blatant accounting farces through FASB changes, refusing to force banks to mark defaulted loans at the current market value of the underlying asset and outright handouts of taxpayer money through AIG as a conduit is outrageous, and worse, it guarantees that the economy will not and cannot recover as the debt still remains in the system!" . BINGO! Karl, you are right, BUT this bullshit manipulation has to work its way thru the trade. All things in good time Karl (buddy).

It took some time, but I have given into the fact that real TA nor EWT counts really work well at all right now. Fundamental analysis is dead. This fing market is running IMO on rotten analyst ratings, accounting scams and any other fing manipulative bullshit technique they can use to keep it afloat. Of course GS is gonna go up. You really freaking think they are gonna post a bad number or give weak guidance? I'll be surprised as hell if they do. In fact, you can draw and quarter me tomorrow at 9:00 if they do.

Ask yourself, who the hell is behind the depressed estimates and buy ratings? We've relieved ourselves, although inadvertintley, of the vast majority of the brokerages that were not part of the "club" and thus the gang can all get together to pump up the buy ratings and "take advantage" of this earnings trough. At the worst time in history when these holding companies need income in the worst way, you actually think they are going to do something that would not spurn a buying spree? Get real dude. They are in the business of pumping and pushing product. BUY AMERICA baby!

HA! Here is where the problem lies. They have dug their own hole and unintentionally will release the doom and gloom. Unless they come up with a "super buy" rating or for the KMart shoppers a "blue light special" on aisle 2, they can't pump these things up any more. I mean really, who the fuck is gonna put a buy rating on any freaking retailer (or insert any sector here _____) in the worst economic downturn since the great depression. Give me a fing break. Also, the banks manipulated BS earnings will collapse one day (sooner than later). IMO either this quarter or next will be the last before the shit hits the fan.

Folks it is all a bunch of bullshit and the house of cards will come crumbling down GUARANTEED here at Shanky's site. P3 will occur. The moronic and manipulated analysts will be eating crow. I'm sure most of you know my call from my Shanky's State Of the Charts Post. Option one is up then down. See, MW is just catching up with your buddy Shanky. She lags.

Both Karl and MW are right. Up then down. Even GS will crumble one day (not sure how, but it will). Just be patient P3ers and permabears. Be patient and don't bang on MW too hard.