UNG has "run out of new shares" - Interesting information for those trading natural gas or UNG

Here is some information posted by one of my readers - I know the comments are not easy to read in the format here so I'll copy it in below:

Never like these etfs. They have a structure that imposes additional layers and risk above their future and swap offerings. Also their massive rolls distort the markets. They may be controlled or outlawed with the proposed legislation. They have cra**y tax structures that reduce many of the 60/40 benefits available in trading certain futures. It's better to trade the underlying. Oh and there's this little ditty today from Bloomberg on UNG:

Natural Gas Fund Says It Has Run Out of New Shares
By Asjylyn Loder, July 7, 2009
(Bloomberg) -- The United States Natural Gas Fund, the largest exchange-traded fund in the fuel, said today that it has run out of new shares and will suspend issuance of creation baskets of new units.

The Alameda, California-based fund said it can’t issue new shares until it gets permission from the Securities and Exchange Commission, the Commodities Futures Trading Commission, the Financial Industry Regulatory Authority and the National Futures Association. The fund applied to register 1 billion new shares on June 5 and is awaiting approval.

“In particular today, when the CFTC announced that it is reviewing position limits, there’s no guarantee that they’ll get those shares,” said Paul Justice, an ETF strategist with Morningstar Inc. in Chicago.

Trading of the units was suspended pending the company’s filing today with the SEC. Trading resumed after 2:20 p.m. The fund fell 35 cents, or 2.9 percent, to $12.20 at 3:06 p.m.

The natural gas fund has seen its popularity soar in recent months as investors staked out positions in natural gas. The price of the fuel has dropped 40 percent this year. The shares outstanding in the fund have increased to 281 million, more than eight times the level at the start of the year.

As its popularity has grown, so has its position in natural gas. At of the close of business yesterday, the fund held 18.7 percent of the open interest in August natural gas futures on the New York Mercantile Exchange, in addition to 51,746 natural gas swaps on NYMEX and 244,432 natural gas swaps on the ICE over-the-counter market, according to the fund’s Web site.

Fund Shares

The fund has an open-ended number of shares. It creates new shares or redeems outstanding shares in baskets of 100,000. The fund then invests the money in near-month natural gas futures, rolling the contracts forward to the second month as the near month approaches expiration.

Without the ability to issue new shares, the fund may begin trading like a closed-end fund with significant premiums or discounts from the value of its underlying assets, Justice said.

“Until the issues are resolved, I would consider the situation riskier than it was just a month ago,” Justice said.

Last Updated: July 7, 2009 15:15 EDT

Folks - I cannot really comment whether this information can affect the technical outlook for UNG, or is just very good information surrounding natural gas. Maybe one could make arguments either way. I certainly have no problem with people being reluctant to get involved with this market. In fact, my former trading mentor warned people away from trading natural gas, he felt it is too volatile (in terms of trading of course!). Frankly the real reason why I got involved looking at this is that I noticed that certain of my readers, and many others, were getting involved with it and the sentiment seemed too "hot." My main purpose was to caution against buying unless and until it broke that triangle to the upside - and of course, that didn't happen.

So, it's fair to say I am not advocating buying it ... well technically, I don't advocate buying or selling anything. Just trying to present technical chart-based information in as "Unbiased" a manner as I can. So be careful out there all, as always!