Somebody asked me about my Nat gas play recently – given that I had it pegged as a winner in one of my Top Picks on BNN back in March. Nat. gas has been pretty flat this winter. We bought a position in the Natural Gas ETF (UNG-US) at the bottom of its trading range in February – right around current levels. We really haven’t seen the kind of action we’d like to see. It flirted with the first target of $27.50 before we bought, as shown on the chart below, but then it promptly fell. We felt it had a good shot at hitting the first target –and possibly even the top target near $35—but so far, no go. This is the reality behind playing any commodity chart. They can be whippy. But if you buy near the bottom of a range, you might be able to wait it out to see if it gets a nice rally – even if its a short lasting one.
Seasonality is often positive for gas right out until June. Right now, the chart shows us that the ETF is right back to support at $23. Bottom line support is near $22/share. To us, the trade still has a good risk/reward profile. Downside from current price (just over $23) to support (somewhere near $22) is acceptable. I would stop out if it fell much below $22 and stayed below that level for 3 days. So I know my downside. Upside to $27.50 is good. That’s about 20% upside vs. about 6-7% downside from the current price—assuming I stopped out just below $22. Call it a 3:1 reward to risk ratio. Not bad.
Moneyflow (bottom pane on the above chart) is building within the ETF. Its neartermed oversold, and mid termed approaching oversold. The seasonals are still “in the zone”.
I’m still in the trade.
Thanks so much for all of this Keith. You are a real gentleman. What are your #s on ZEM and ZMT. Still holding?
ZMT–still in it–we target low $50’s
ZEM–just sold it. Our target was $21. Its just under that right now so we took our profits. We have exposure to China so we wanted to take some of our EM exposure out of the portfolio–the chart is still ok for ZEM but it is heading into a bit of resistance now.