Potential Bullish Reversal Action In The United States Natural Gas Fund, LP (UNG)

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October 9, 2013 12:41pm NYSE:UNG

natural gasMorpheus Trading: Yesterday’s selloff was broad based and ugly, with just about every sector getting hit (utilities were the exception). The NASDAQ Composite and Russell 2000, the leading market averages in recent months,

were hit the hardest with losses of -2.0% and -1.7% respectively. The NASDAQ Composite is now the only index still trading above the 50-day moving average (but not by much).

Leadership stocks were hit hard as well, with $LNKD breaking below its 50-day moving average on a 200% increase in volume. $QIHU, $VIPS, $SFUN, $P, $MELI, $PCLN, and $AMZN are a few names that sold off on heavy volume as well. Although $PCLN and $AMZN had a rough day, they are still trading above the 50-day MA. .

The broad market rally is just barely hanging on. If leading stocks begin cracking their 50-day moving averages en masse, our Market Timing Model will e forced to shift from “buy” to “sell” mode.

With the broad market averages in pullback mode, there isn’t much in the way of actionable buy setups on the ETF side, though we continue to monitor the potential bullish reversal action in United States Natural Gas Fund, LP (NYSEARCA:UNG).

As shown on the monthly chart below, $UNG undercut a prior swing low in August and formed a bullish reversal candle. Since then, the price action has traded in a tight range, just below $20:

$UNG bullish reversal candle

Drilling down to the weekly chart, we see a bullish downtrend line break, but the price is still below the 40-week moving average, and the 10-week moving average is still below the 40-week moving average. We could possibly see an early entry point develop (for partial size) IF the price action tightens up for a few weeks just below the 40-week moving average:

$UNG downtrend line break

On the shorter-term daily chart (below), we see a potential “higher swing low” in place, but since the prior downtrend was four months in length and broke the 200-day moving average, we would prefer to see a second “higher swing low” develop before we begin to buy.

Furthermore, the 50-day moving average is still trending lower and has yet to turn up. Although $UNG is not yet actionable as a swing trade setup, we will continue to monitor the action for a low-risk buy entry.

$UNG higher swing low

Yesterday was a busy day, as we closed out two existing ETF positions to lock in profits and/or minimize losses. On $XBI and $TNA, we lost 3.6% and 6.3% respectively. However, these losses were relatively small considering the 44% gain we secured in $TAN last week (technical review of this trade will be posted on our blog later today).

On the individual stock side, we sold $BITA and $LOCK for solid share price gains of 36.7% and 13.8% respectively. We also sold $LNKD for an average loss of just 2.7%.

In trading, it’s the win/loss accuracy rate typically has much less to do with one’s long-term profitability than the average $$ size of a winning trade compared to the average $$ loss of a losing trade.

Lately, we’ve been closing trade with about a 50% win rate, but with an average gain that has been MUCH larger than the average loser (didn’t calculate the specifics yet).

This article is brought to you courtesy of Morpheus Trading, LLC. 

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