Commodity ETF

The chart above is the long term chart of Natural Gas going back to 1994 on the monthly scale. You can see that after very steep vertical declines the Natural Gas Contract has a tendency to stop on a full retest and do a double bottom before trending higher.

It remains to be seen whether or not Natural Gas will trend all the way down near the 3 range again but I consider it at least a possibility.

Zooming in closer you can see that the price is sitting on crucial support area and there is a large tradable void below this red dotted support line.

If we break it, the move could possible extend down to the 3 range again.

That would set up a potential very significant buy opportunity.   It may also set up a potential opportunity in the UNG Natural Gas ETF which is already breaking to new 52 week lows and is currently trading in the 8 range.

If the actual Natural Gas Contract trades down to the 3 range or slightly lower, then I would not be surprised to see the UNG trading below 5 or even lower.  So my sense is that there is a potential very big buy opportunity setting up in the UNG as long as the actual contract can hold long term support and get some kind of a double bottom accomplished.

Whether the UNG ETF can survive that kind of decline remains to be seen.  The daily volume traded in the UNG is enormous and higher than I have seen for most other ETFs.  But I am crossing my fingers that they do not discontinue this ETF when it is at rock bottom single digit prices.

The gold price has a habit of doing these long slow consolidations and putting everyone to sleep when they should be sitting on the edge of their seats eager to buy with both hands.  It also seems to get the beginning of big moves going on slow days of the week (Friday or Monday or near holidays) when a lot of people are not paying as close attention as they normally would.

I am bringing up the GLD ETF again because if the GLD is able to trade with a full price bar above the 114 level then in my opinion it warrants a confident move into the bull camp again.  However anything below that is still too risky.  Gold also has a habit of rallying up to previous swing trading ranges and then falling apart.

So 114 and higher on the GLD tells me it is time to jump in with both feet into either the GLD or the DGP ETF (the gold double long ETF).  The condition is that the GLD must continue to hold above 114 from there onward.  If the GLD is strong enough it will hold above that area and any pullbacks will be slight enough to keep it from falling under the 114 again.

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I have tried in recent months to come up with bearish reasons why the gold bull market is ready for a pause and a long 2 to 3 year corrective consolidation.  Certainly I think it is reasonable for one to expect a 2 or 3 year consolidation in the gold price given that it has been going UP in very persistent fashion since 2001 ?

But despite my desire to come up with a bearish outlook, the tape action as shown in the GLD ETF is voiding those conclusions at least for now.

Gold looks surprisingly bullish to me right now and the GLD ETF may be getting ready for another massive leg up.  The correction of the last few months has been orderly and not catastrophic.  Price has held reasonably well.

Most recently we see from the yellow shaded area on the chart that the GLD has initiated a 2B buy signal, a short term bullish sign.

In addition the GLD has managed to break up and out of the downtrend that has been defined by the solid downward slanting downtrend (solid blue line).

However the GLD still remains within a congestion zone defined by the 105 and 114 levels.  Despite the early bullish signs, this is still a dangerous congestion zone that can trap new commitments very quickly.

For me to get pounding my fists on the table bullish on gold and the GLD ETF, we need to see the GLD trade with conviction above 114 level.  Above there and it is time to go long gold aggressively again in my opinion.

In the short term the US dollar index looks somewhat toppy, so that could support the GLD moving up to 114.  But whether or not we get a break through remains to be seen.

The confusion comes in when we look at the longer term chart of the US dollar index which still has potential signs of higher trending prices.  If you look at the long term price chart of the US dollar since 2001, it is hard to get very bearish on it again given how long it has been going down and also now that it has done a sloppy double bottom off of a large base.  However the double bottom in the US Dollar index is not really confirmed unless and until the dollar is able to trade much much higher from these levels.

So regardless of what the dollar does, the key still remains the 114 level on the GLD ETF.  If broken decisively, it should open the door to an eventual move to 140.

I continue to be long the UNG natural gas ETF since I first mentioned going long at 9.38 on December 8th.  Despite all the negatives you will hear on stock message boards and elsewhere about how no one needs Natural Gas anymore, the chart is quite compelling to me.  There is so much negativity on this ETF right now that just based on that alone it is at least worth a look.

Did you know that if the Dow Jones Industrial Average was up the same percentage amount as the UNG ETF was on December 10th, 2009, the Dow would have been up about…

787 Big Dow Points in One Day!

So my point is that the market is always throwing you different pitches, each with a different risk reward.  Where the risk appears to be the highest it is often the least, and where the risk appears to be the lowest it is often the highest. 

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Despite my previous post talking about UNG needing until end of year to get a reversal going, I am seeing enough right now on the daily chart to try going long UNG again at 9.38 with a stop at 8.96 which is just below the super high volume gap up day.  It seems like a compelling setup and relatively low risk/reward type setup.

I have noticed a couple of 2B buy setups on the chart and combined with the daily macd histrogram and the super large volume buy day the other day I am willing to bet that UNG has a more important bottom here. 

It could still be choppy for a while but this just seems like a good trade here.  Almost everything else is overbought out there right now.

The chart is showing a small broadening wedge pattern near the double bottom retest and we may trade up to the top of that range combined with hitting the 50 day moving average before getting some kind of downward consolidation.

The cold weather spell out there seems to be helping support the UNG ETF as well .

The UNG Natural Gas ETF long term monthly candlestick chart looks good for a possible real longer term reversal starting in January 2010.

The current monthly candlestick on the UNG ETF is shaping up to be a bottoming tail and I think it is a good idea to keep an eye on that monthly candle as December 2009 comes to an end.

I don’t think the UNG ETF will be able to break above the down trend line resistance significantly until January 2010, but whether it does it in December 2009 or January 2010 is irrelevant at this point.  If it achieves that then it is signaling a possible major trend reversal and possible extended new uptrend.  I am viewing 10.20 and higher as a key level to sustain

The monthly MACD continues to slow in bearish momentum and I suspect it will be ready for a bullish cross going into January 2010.

So the UNG ETF could very well be an outstanding core type trade within this key time frame.  The daily chart has down that the UNG is forming a more complex double bottom formation.  I suspect that the UNG will continue to play lots of head games down in this range until it gets enough of a launch pad to get the new uptrend going. 

This is definitely a slow cumbersome process but I believe a 2010 trend change of some sort is at hand.

Gold is getting hit bad today and if you look at the dollar amount on kitco.com it looks a lot worse than if you just focus on the price chart.  The GLD ETF was overdue for some type of consolidation and using the employment report news today seemed like a good enough excuse for the big money crowd to slam it down.

Right now my take is that we are going to enter some type of sideways consolidation perhaps a month long before going higher again.  I say that because I think today’s price destruction in the GLD combined with the huge volume should be enough damage to start a trend change/ and or consolidation.

The chart above is the GLD ETF in the 2007 to 2008 time frame.  The red arrows point to heavy selling days that damaged the up trend enough to get the GLD into consolidation mode for a while.  So I am expecting something similar to what occurred in the chart above.

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I have to call the UNG double bottom a failure at this point.  Only 4 days ago the price bar had me thinking it was a confirmed double bottom and UNG was ready to rocket north in swift fashion.

But instead UNG has broken down badly again and today busted support on substantial volume.

I don’t know if UNG is going to make a more complex bottom here or just keep breaking down now even lower.  But today’s action does not inspire much confidence that a firm double bottom will stay in place.

UNG seems to be behaving in almost opposite fashion to most other markets these days.  For example the SP500 has repeatedly evaded sell signals and bearish divergences and UNG has repeatedly evaded buy signals and bullish divergences.

So it seems the lesson here is to respect the previous trend as much as possible and as long as possible until you have much stronger signals of a confirmed trend change.  So it may not be a bad idea to wait until we see an actually monthly bullish MACD crossover before thinking about playing the long side on UNG.  Until that happens it would appear that the sell side is still much too strong.

We already know that the gold price has been blasting higher into all time new high ground and has ZERO resistance on the left side of the chart.  This is part of the reason why the gold price has been able to trade higher so persistently and now in what appears into a parabolic type fashion.

But what about silver or the SLV ETF ?  Silver has been lagging behind and is not at a new high yet, let alone all time record high.

There may be a silver trade developing when and if the SLV ETF can get a price move ABOVE 20.73.  The silver futures price above a price of 21 has very limited resistance all the way up to 49 which is the 1980 spike high.  So the possible trade is a momentum trade on an activation of 20.73 or higher on the SLV ETF.  Or some call options might be appropriate at that time.

Silver is basically be dragged higher by the gold price and we already know the gold price has exceeded its 1980 high so why can’t silver do the same thing? It will, but it will take time.  But I would not be too surprised if silver can make it to 50 some time in 2010.  It makes sense for it to do it soon since as I alluded to earlier there is almost no resistance from 21 to 50.

So for now silver is something to keep on watch as the precious metals frenzy continues to heat up into the end of the year and 2010 begins.

I will see if I can do some type of follow up here as we get closer to the previous 20.73 high.

The UNG Natural Gas ETF may have bottomed recently.  It could be that this is a major major long term bottom in the UNG ETF but it is way too early to make any firm conclusion on that yet.  I am just speculating it as a possibility because of the extended nature of the bear market decline and the degree of oversold it reached.

However, the UNG has done this double bottom retest on significantly less volume and makes for quite a convincing double bottom at this point.

I suspect that the UNG wants to eventually move back to the top of this trading range indicated by the white dotted line in the chart.

I am seeing the monthly MACD get into a bull market stance but price needs another month or two of work to get a confirmed signal. 

If the UNG is able to move back to the top of the range it will go a long way towards moving the monthly MACD into a bullish bull market type stance. So one step at a time.