With the natural gas ETF UNG falling almost 5% before mid-day on Monday, October 26th, let’s take a quick look at the broader picture by seeing the structure and opportunities on the weekly and daily charts.
UNG Weekly
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The weekly chart is showing a lengthy arc or “rounded reversal” pattern that continues to drag out into the $10 per share level.
Volume has trailed off as price has found a consolidation range between $10 and $15 per share in addition to the positive momentum divergence we see underlying price.
The trend structure clearly is down, and price is underneath all key weekly moving averages, and I would suggest taking a special look at the 20-week EMA, which currently resides at $12.38 per share. The 20 EMA has contained all price rallies so far like a brick wall.
Unless you’re an aggressive trader playing for a trend reversal, I wouldn’t touch UNG long for anything other than a daytrade until price can prove that it can sustain itself above the 20-week EMA for at least a few weeks.
UNG Daily
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On the daily chart, we see that price was recently unable to sustain a move above the daily 20 and 50 EMAs, which has been the pattern as seen on this chart. We look at current characteristics of successful and failed patterns to understand the “character,” or “behavior,” of a stock or market.
In this case, buyers can push price slightly above these moving averages, but have never been able to sustain price above them for more than a few days. As such, any move above the EMAs—particularly when dojis have formed—has been a sell signal (almost mocking bulls and creating bull traps).
The black lines reflect adaptive trend lines from earlier in 2009.
If the prior trend continues, then we will be looking for a price move down to test $9.50 or $9.00 in the next few weeks, provided that the $12.00 level holds (as it seems to be doing) as resistance.
Thus, $12.00 is the line in the sand, and as long as price remains underneath this level, then odds seem to favor lower prices as a factor of the crushing downtrend in place.
By Corey Rosenbloom of AfraidToTrade.com
