Natural gas looking bad today, is starting to make it look more interesting from a swing trader's perspective. Not that it looks ready yet to buy! But the triple bottom breakdown, as also picked up with the default P&F chart at Stockcharts.com (at right), confirms my suspicion that the earlier spike recently was just a head fake. I had noticed a lot of people talking about buying natural gas or UNG (an ETF for natural gas), and just had the feeling that sentiment was too hot. I posted a view of it previously then (use the "Natural Gas" label to locate that). As I mentioned then, it looked like it might need to touch lower to a long-term trendline. Before it could confirm bullish, it needed to break above the triangular consolidation ... well, it did the opposite. The fact that it's moving down indicates it is probably in a fifth wave thrust down (which can be shorted by nimble traders) out of the triangle. The good news is that seeing a fifth wave thrust down from a triangle, is a clue that this last move down may finish the cascade in its price. Well, it's good news for swing traders who want to buy it, anyway (I'm not speaking for consumers at this point!).The measured move out of a triangle is to take the biggest range of the triangle, and then add it to (or in this case subtract it from) the point where it completed the "E" wave. If I'm measuring it right - and if it's a classic EW triangle - that points to exactly $12 in UNG. Not far away - that's why shorting the breakdown is only for nimble traders (unless they already went short at $16.26 and are enjoying the ride!*). So, we can start to look if and when it reaches $12 to consider buying it for a swing trade position long. We'll want to see the movement down from $16.26 looking internally like it completed 5 subwaves. Then the classic thing of course, is that it must exhibit a trigger bar (moving and preferably closing above the highest point of a preceding day that made a lowest point at or under $12). Positive divergence in the indicators also should be showing. It will also be very nice if it touches that long-term trendline, which I think can be below $12 but perhaps under $11, but I cannot pinpoint that with great accuracy so I'll have to focus more on the chart pattern setup and the indicators.
*(Update note - if the triangle could be measured as having extended farther in time so that the "E" wave finished at the $14.90-sh level where it lost the 50-day moving average in late June, then the measured move target would point to about $10.64. Another reason we want to watch the subwaves and the indicators.)
The charts below are just the standard "gallery view" set for UNG (including the default P&F which I placed at upper right). You can see that the PPO indicator is showing positive divergence in the weekly chart, although other indicators haven't moved into bullish mode yet.
It's nice to get a potential setup in sufficient time to prepare and move on it. The next question will become, what's the target price for a move up? If all it does is a wave 1 up, then longs will want to TMAR to avoid losing the profits during a wave 2 pullback (they're typically rather low, and sometimes take a long time especially after a vicious long-term correction such as natural gas has experienced). It will be down the road, when there is a wave 3 upward after a wave 2 pullback, that the real money will be made.
For now, I hope that my readers were able to step aside and either go short or at least avoid being long as natural gas fell off after the apparent wave "E" and into this thrust down. And I also hope that my readers interested in buying natural gas, will be ready to think about going long when the time is right (which looks like it won't be more than another few days).
*PS - for those curious about a triangle wave "E" being (in this case) higher than the wave "C" of a contracting triangle - my understanding is that it definitely can happen and it's a reason to look for a complete break out of a triangle, meaning in this case above the wave "A". And it looks like the wave "E" did complete higher than wave "C" in this case! Also, if natural gas had moved above the wave "A" level ($17.55 on the UNG chart), then it actually would have been a broken triangle or a "triangle trap". This is because, where you see a triangle, the standard expectation is that once the triangle has finished the ABCDE waves, then price will move out of the triangle in the same direction it entered the triangle. In this case, price was moving down, so the standard expectation is for price to continue down (if it's a normal triangle, which this one has proven to be) out of the triangle.
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