Prices keep getting smoked. Every rally attempt gets crushed. No key reversal days to speak of. The destruction in Natural Gas just continues.
A few months ago Natural Gas prices were consolidating nicely within a much longer-term decline. We figured that it would break down to new lows and that this next sell-off could create the reversion to the mean buying opportunity that we’ve been waiting for. Unfortunately, the key reversal to present us with a fixed risk vs reward still hasn’t come. Just more lower lows and lower highs.
When the US Natural Gas Fund ($UNG) was up over $20, as hard as it was to believe at the time, the measured move on a break was down around $17-17.50. Here we are today at $15 with the commodity itself down under $2.00. What a train wreck.
Meanwhile, the Crude Oil to Natural Gas ratio continues its bubblicious ascent. Today, this ratio sits up over 52:1,
The average since 1990 has been 10:1. Can the market stay irrational longer than we can remain solvent? Yes, we are fully aware of this. But one day, this will end badly.
Until then, we’ll sit tight waiting for a solid risk/reward. What is it going to look like? While not totally sure, as I said on Business News Network, it could happen over a weekend, over night, or perhaps intraday. New lows will be met with buyers quickly warning us that those lows could not be sustained. Once we have a pivot point, or fixed level of support to trade off of, we can enter a trade.
It really is all about finding a defined risk vs reward. If it’s not there, fine. Wait for your pitch.
About That Crash in Natural Gas Prices (Allstarcharts Feb 28, 2012)
Is This Natural Gas Rollover a Potential Entry Point? (Allstarcharts March 1, 2012)
Tags: $NG_F $UNG $GAZ $FCG $BOIL