Wagner Daily: A Closer Look At The Natural Gas ETF (NYSE:UNG)

Wednesday’s trading brought a spectacular price reversal for the major indices, but no accompanying volume. All of the indices closed up on the session. The small-cap Russell 2000 led the advance by posting a 2.3% gain for the day. The S&P MidCap 400 and the Nasdaq were up 2.1% and 1.9% respectively. The S&P 500 and the Dow Jones Industrial Average were the day’s laggards. Still, they both realized solid gains approximating 1.4 % for the day.Internals were mixed on Wednesday. Volume was dramatically down on both the NYSE and the Nasdaq. Volume was off by a whopping 20% on the NYSE, while Nasdaq turnover fell 14% day over day. However, advancing volume overwhelmed declining volume by a ratio of 10.4 to 1 on the NYSE and 7.1 to 1 on the Nasdaq. However, the lack of volume draws into question the force behind the rally. To confirm that the current rally off the November 16 swing low in the market is genuine, we will need to see at least one bullish accumulation day in a major average.

The DJIA and the S&P 500 have both been contained within a tight trading box for the past seven sessions. The S&P MidCap 400 has exhibited the most relative strength and looks poised to find a new 52 week high. It is followed closely by the Russell 2000. The key to the next move in the market appears to be in the hands of the recently directionless Dow and S&P 500.

On Wednesday we sent an alert that we were entering the United States Natural Gas Fund ETF (NYSE:UNG). The following chart provides the rationale behind this entry. UNG has been consolidating since mid October. It is now consolidating above the short term trend line, the 20-day EMA and the 50-day MA for the first time in months. During recent rallies volume has been increasing. Although this is a counter trend trade, it offers a reasonably safe entry point because of recent consolidation and accumulation. Further, it fits our technical criteria for reversal plays. For our subscribing members, trade details are posted in the watchlist segment of the newsletter.

As discussed, the Dow and the S&P 500 most likely hold the key to the next significant move in the market. Without confirmation from both indices, we are likely to remain range bound.

NOTE:Regular subscribers to The Wagner Daily receive daily updates on the open positions above, as well as new ETF trade setups, including trigger, stop, and target prices. Intraday Trade Alerts are also sent via e-mail and/or mobile phone text message on as-needed basis. 

Deron Wagner is the head trader of Morpheus Capital Hedge Fund and founder of Morpheus Trading Group (morpheustrading.com), which he launched in 2001. Wagner appears on his best-selling video, Sector Trading Strategies (Marketplace Books, June 2002), and is co-author of both The Long-Term Day Trader (Career Press, April 2000) and The After-Hours Trader (McGraw Hill, August 2000). Past television appearances include CNBC, ABC, and Yahoo! FinanceVision. He is also a frequent guest speaker at various trading and financial conferences around the world. Wagner is currently working on this third book, scheduled for publication in early 2008.For a free trial to the full version of The Wagner Daily above, which includes detailed ETF trade setups and daily position updates, or to learn about our other newsletters, visit morpheustrading.com or send an e-mail to [email protected]

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