UNG Natural Gas ETF Still Has an Interesting Price Chart Setup


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. 

So UNG right now for me still falls in the ‘risk appears to be highest but is actually the least’, and the broad market (ie. DJIA) falls in the category of ‘risk appears to be very low but is actually the highest’.

In fact the current bottoming structure in the UNG ETF is somewhat similar to the way the SP500 bottomed in March of 2009.  The lows that were occuring in March of 2009 in the SP500 were more marginal lower lows and they were done on significantly less volume than the previous spike low of 11/20/2008 period.

With the UNG ETF we have in November tested the WASHOUT low of September 2009 on dramatically lighter volume.  In addition despite hitting new 52 week lows in November and December they have only been marginal new lows.  Also, we generated a 2B buy signal in early December when we closed back above the support range of 9 and headed higher on big volume.

That implies on a longer term basis that UNG should eventually guide it self back to the top of the trading range which is the 12 area.

The November December price pattern to me qualifies as a three river bottom.  A buy signal from a three river bottom would initiate on a price move above 9.84  We did not manage that today but it appears to be in the cards this week.

Also the near term volume analysis on the UNG ETF looks very bullish to me.  Specifically what UNG did was create a price swing on 11/27/2009 at a high of 9.83 on about 21 million shares.  But on 12/10/2009 we made a swing high of 9.86 on about 59 million shares.  So the 11/27/2009 price swing was tested on 12/10/2009 on 185% GREATER VOLUME !!!

I know enough about volume analysis and price swings to know that that type of setup is extremely favorable for the 9.84 level being exceeded and exceeded in a big way.  When you test a previous swing high on equal or greater volume then ultimately the previous high will be exceeded.  That is classic volume analysis.  But when you exceed a previous swing high on 185% greater volume it is like squashing a fly with a sledge hammer.  All we needed to do was test that high on 8% or greater volume, but we got 185%.

Plus, the price and volume action of recent weeks is an entire character change for the UNG ETF. Big volume advancing surges versus low volume pull backs.  That is indicative of a new uptrend or beginning of a major new uptrend.

Lastly, the UNG ETF shows a nice tradable void in between the 10 to 11 range.  A tradable void is where there is not too much noise or congestion.  This tells me that if and when we exceed the 9.84 level it could be a relatively fast move to 11 before pausing.

The next natural gas inventory report comes out at 10:30 AM this Thursday.  I don’ t know how much of that number will already be built into the price when we get to that point, but the near term technicals still suggest up to me for now.

The very long term charts suggest UNG is forming a major multi month bottom and new bull market signal but that signal will not come in probably until January or February.

So as of the time of this writing, it looks like bluer skies for UNG and a nice alternative to either gold or the SP500 for those who are afraid of heights 🙂 .

Posted in Commodity ETF, ETFS

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