Monday, October 19, 2009

Natural Gas Outlook and UNG

Natural Gas is consolidating just under Friday's highs 4.88. The .62 retrace of the 5.12 to 4.35 "-b-" wave down is 4.83, so new highs over the 4.88 level represents a resumption of the move up and likely advance to test 5.12, the "-c-" = "-a-".  BTW there is still a significant 33% of spec shorts according to Fri.'s COT report.

Over 5.12 and 5.57 looms large. The "-c-" = 1.618 of "-a-" @ 5.59 That target is ALSO  c = 1.382 of a ( of a greater degree on the spot chart) AND the long term .236 retrace of 15.78 to 2.40.  That represents a significant cluster of resistance. Given the near record inventories, and the seasonal tendency for an intermediate term pullback from Oct on, the downside risk following the next leg up will be HIGH.

Additionally there is the potential for the pullback to last several months into the seasonal early winter low. If for instance that were to be a not uncommon 50% pullback on the spot chart to roughly 4.00, that would represent some real pain for holders of the Feb. contract.


UNG is just finishing it's roll into Dec, OUCH! That costs them something like 17% of their position as they pay up.  Hence the UNG price under performance and failure to match the NG spot month  113% move up by a long shot, only 33%.
So if the NG gets to 5.58 or so UNG will be lucky to see better than $12.00. All those holders of UNG MAY be encouraged by upward momentum. but personally I think the upside performance may start to disillusion.

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