We saw a nice little 60% move in Natural Gas prices over the last three months. But was that it or are we still going higher?
It looks to me like they put in a pretty solid base that took 6 months to form. So the setup is there. We have a clear neckline around $2.75 that’s now been broken. The month-long consolidation around those levels has allowed the 200-day moving average to flatten out and the rising 50-day to catch up to higher prices.
Here is a daily bar chart showing the $3.60 target:
We achieved this target by taking the distance of the Head to the Neckline (2.75-1.90 = 0.85) and adding it to the breakout/neckline level (2.75+0.85 = 3.60). For Risk Management purposes, I would be watching this 2.75-2.80 level where the neckline meets the 200-day moving average. I would not want to be in NatGas if prices are trading below that. Anything above it is a go.
We’ve been on the Natural Gas bandwagon for most of this year and it continues to be one of the few trending assets out there. We see it as a lot easier to buy dips in trending assets (and short downtrending assets) rather than get whipsawed around in a rangebound market (i.e. S&Ps).
Talking Technicals on Bloomberg Radio (June 27, 2012)
The Bubble That Popped in the Oil to Natural Gas Ratio (May 16, 2012)
The Natural Gas Crash Revisited (April 12, 2012)
Tags: $UNG $NG_F $CL_F $SPX