Friday, November 27, 2009

Natural Gas Looking Bullish

I've been patiently waiting and watching natural gas for an entry to buy as I feel this market has bottomed. If you look at the above chart of natural gas futures, you will see that a very important support level has been tested last week and appears to have held. The 4.50 area which was once resistance has now become support as you can clearly see.

In the lower pane is the MACD indicator which has given a buy signal indicating that momentum is now coming into this market on the upside.

The question that comes to mind is how to play this market. Well the best way is to simply buy natural gas futures. Being that I no longer trade futures markets due to the many ETFs that make participating in commodity markets much easier, I chose to buy a natural gas ETF.

The two ETFs that come to mind are UNG and GAZ. The problem with these two ETFs is that they sometimes do a poor job at tracking natural gas futures due to the spread differential between the spot month and the next month out. Being that I am not willing to trade natural gas futures, I decided to go ahead and buy GAZ anyway. The reason I chose GAZ over UNG is because GAZ seems to be slightly stronger than UNG. You'll notice in the chart below that UNG actually broke to a new swing low while GAZ did not.

I bought GAZ in the morning today on the gap down and have place my protective stop right below last week's low. If I am right, I think we'll see natural gas futures move well above last month's high which makes the reward to risk ratio quite favorable. The only problem I have with this trade is that if natural gas futures does indeed rally well above the last month's high, there is no guarantee that UNG and GAZ will do the same. I'm sure these two ETFs will underperform the futures but should still move higher which is why I think it's worth buying right here.


Anonymous said...

Watch the dollar.

Michael said...

Very nice identification - in this chart you can see how precisely the Resistance level has turned into a Support level upon its breakout.

Obviously it is late to enter now, as the Resistance at 5.8 is also very close. Price might even create a Double Top on that resistance, completely shifting the trend.

victorberry said...

Just to muddy the waters further, there are at least two other natural gas ETF's to consider: FCG and UNL. If nothing else, maybe they can be provide corroboration for a bullish outlook on natural gas.

Anonymous said...

I believe UNG going for a long wave up.
100% could come from here

Anonymous said...

Contango in nat gas is actually not too bad right now so the roll should only have a mild affect on the ETF if you hold it past contract expiration and the current price structure remains.

getyourselfconnected said...

I dont know. Balance the down time against the up time (above and below the median) and I see it as range bound between 3.8 and 4.8 going forward. My 2 cents.

mingworld said...

UNG looking still bearish on the weekly chart.


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