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ACCUM./DIST. CHAIKIN


UNG Major Daily Divergences

11/23/09 09:35:17 AM
by Donald W. Pendergast, Jr.

A significant daily divergence/double bottom pattern may finally be in place for natural gas.

Security:   UNG
Position:   Accumulate

Even the longest downtrends end at some point, and we may be nearing the start of a significant trend reversal in the natural gas complex. There are numerous technical and/or fundamental clues that suggest that going long natural gas in the near future may provide profitable outcomes for both swing traders and put sellers. Figure 1, the weekly chart of UNG, is our focus.

FIGURE 1: UNG, WEEKLY. 2B or not 2B? That is the question, but not even Shakespeare could guarantee a successful trend reversal in natural gas right now. However, the technicals and fundamentals are now stacked in favor of a bullish trend reversal.
Graphic provided by: MetaStock.
Graphic provided by: WB Keltner Channels EOD from ProfitTrader.
 
1. UNG has just made a (tentative) higher low on its most recent downswing.
2. The detrend oscillator (top panel on chart) is confirming a substantially bullish price-momentum divergence.
3. The Chaikin money flow indicator (CMF)(34) at the bottom of the chart is also confirming a major bullish divergence with price.
4. The inner Keltner band is acting as current support after the recent downswing.
5. The daily ranges of the candlesticks are contracting to a noticeable extent, indicating that the fear factor evident on earlier selloffs has abated — a very bullish omen in the overall context of the other technicals.

Finally, the natural gas seasonal chart (not shown) indicates that November natural gas is normally near the lower end of its annual price range during the December–January time frame. Combined with all of the technicals mentioned earlier, this may be shaping up to be a trend reversal of note. Knowing all of this can't produce profits in your account unless you know how to play a potential reversal in such a way that you don't take on an inordinate amount of risk. So let's examine two ways in which traders might be able to put a natural gas trend reversal to work in their own trading accounts.


Daily swing traders could simply wait for the first daily close above the upper Gann swing line (a three-bar simple moving average of the daily highs and lows, plotted directly on top of the daily price bars). Once you see that daily close above the swing line, enter a long position at the next session's open and then let the trade run until the lower Gann swing line is breached. Although this entry/exit method seems ridiculously simple, it can and does produce excellent trade outcomes a high percentage of the time, especially when numerous other technical/fundamental factors are pointed in a bullish direction (money flow, successful support/resistance tests, relative strength, seasonality, and fundamental supply/demand). Spend some time fine-tuning your trade entries/exits and you may never have to spend more money on another trading system or advisory service.

Traders banking on a more long-lasting trend reversal might consider selling May natural gas puts at prices far below the current price for the May contract, but wait a bit longer to sell such puts unless you're convinced that the major low is already in place.



Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address: lineartradingsys@gmail.com

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Date: 11/25/09Rank: 5Comment: 
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