Natural Gas Charts Signal Strong Move

07/03/2012 8:00 am EST

Focus: COMMODITIES

Greg Harmon of Dragonfly Capital explains why several charts in natural gas argue for higher highs ahead for the associated ETF.

I recently argued that the turnaround in the spot market for natural gas may be starting, but it was not yet time to buy the natural gas ETF, the United States Natural Gas Fund (UNG). Tuesday was the first signal to enter, and we could get another at the end of the week. The daily chart below shows that the price broke above the neckline of the Inverse Head and Shoulders mentioned.

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This is a long entry signal for aggressive traders, with more conservative traders looking for a retest and hold of the breakout or something like a 3% move above the neckline to confirm.

Recall that the price objective is at least 3.60, so there is some leeway. But the second buy signal from the weekly chart below is also about to trigger with a move over 2.84 on the weekly chart, just two pennies away.

chart
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This is easily achievable by Friday. And the way it has been going with long white candles finishing near the highs, the Three Advancing White Soldiers pattern will confirm with a bullish signal as well. These signals will have support from the monthly chart below on a long-term bullish view.

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With Hammer and Doji candles from April and May confirmed higher, and support from the rising Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicator about to cross positive, all signals will point higher. Friday’s close sealed the deal.

Greg Harmon can be found at Dragonfly Capital.

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