Natural Gas–near termed trade or long termed hold?

Keith on BNN MarketCall–tonight 6:00pm

Sorry for the last minute notice, but I was aked to appear tonight on MarketCall instead of my scheduled early July appearance. Be sure to tune in and call  with your questions–CALL TOLL-FREE 1-855-326-6266.

Natural Gas

On the weekly chart, Nat Gas has been trending up since early 2012. That trend hasn’t broken, although there has been profit taking going on since late April. The bigger picture presents a cautious picture for long term investors. With the exception of one blast through the $5 / mm BTU area back in late 2009 – early 2010, Nat Gas has had 4 years of sideways volatility with no signs of blowing through $5 resistance. Note that I’m using the Nat Gas ETF chart (UNG-US) which is priced differently than the actual commodity. In this case, UNG has resistance at $24-ish.  

I’m skeptical of the potential for a lot of upside past $5 for this trade ($24 for UNG). But from current prices, there’s a decent shot at earning a 25% upside, should it get back to the that major overhead resistance point on the chart. Interestingly, this chart may be forming an ascending triangle. Thus, a longer termed trader would want a breakout to the upside for bullish confirmation, or a break of the trendline for a bearish signal.

The commodity is oversold and ready for a bounce off of its trendline—backed by oversold stochastic and RSI oscillators’. Thus, the risk/reward profile on a near termed basis isn’t too bad – especially for the shorter termed trader.

Treat it as a trade and watch that the current longer termed trendline holds. Its holding at around $3.80. Much below that would be a violation of the trend, and  reason to expect further downside.