Natural gas' flame attracting many but watch for move above resistance before committing to this volatile commodity

Many people are buzzing about buying natural gas (often through an ETF such as UNG), so here are some views of the daily, weekly and monthly charts if you're into this. My understanding is that one argument for buying long natural gas is that the relationship between oil and gas has gotten too extended. Well maybe that's resolved by gas going up, or oil going down (maybe even some of both?!). I've got oil marked as susceptible to dropping, but I can see an argument to be long on natural gas if it remains above the support lines I've marked on the charts, below. The weekly chart does show an impressive bullish divergence as natural gas kept descending, which should help. On the daily chart, it looks like it's trying to play out a reverse head and shoulders pattern - it just didn't break above that neckline yet. There's still a risk that it doesn't do that; so I'd feel more comfortable holding back, and then using a stop buy order to trigger a buy if it does break above the neckline. It's above short-term moving average support, but still coming out of a vicious drop and the 200 dma is still descending. Indicators on the monthly chart still haven't crossed up into bullish position. So if you're buying in, it isn't because you're trend following, but rather trying to pick a bottom. That's a tricky endeavor - you need to be certain it can and does break above resistance around this neckline too ...

From a fundamental perspective, sure there are reasons to think natural gas has a bright future. Then again, there are many getting very bullish on commodities of all sorts, and one might also want to check the fundamental analysis to verify the demand-supply situation for natural gas. It disappointed many who were sure, last fall, that it would soar during the winter months. Maybe it will do so during the fall-winter cold season of 2009-2010, but with all the speculation it's still right to be careful. I marked a very long term trendline on the monthly chart. Price did not quite get to it, but I acknowledge that I drew it in a conservative manner ... maybe price doesn't need to drop down to touch it. Still, this is why I drew the lines on the daily chart - to help us be careful, just in case this is one last consolidation/correction prior to a final drop testing down to that.

I did try running some Fibonacci extension numbers, but didn't bother posting those because they point to much lower levels. I ran them based on the idea of looking for a 1.382 extension level in case the huge drop has been a wave C of a flat. Perhaps I should have used 1.272 instead. The take-away on this is, I cannot guarantee from a Fibonacci perspective at this point, that natural gas doesn't have one more new low to make. So if it does pop up in a reverse H&S, you might consider taking profits on half (or all) your position at the standard H&S target, which is taking the range from the head (here, the recent lowermost point) to the neckline, and then projecting that above the neckline. Then if you still keep some in, tighten the stop at least to breakeven (or another level that makes sense to you) to avoid a loss in case it still has that lower, long-term trendline in mind.