Solid Trade Set-Up in Natural Gas

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The charts above give some details on Natural Gas. It looks to me that this market should be in a good position to move higher. It has not really moved in lock step with commodities at large over the last year. From a charting standpoint, I think this looks really good.

The top chart shows the type of advance that is likely to be the first leg up in a new bull market now followed by a modest correction against that new up trend. The second chart shows a a graph of Commitment of Traders data showing extremely high net long positions by the commercials (smart money). Also the dumb money small speculators are coming off of a very low net long position. Looking back at the data, you see that following the commercials and against the small specs is the way to go.

The third chart shows the Dec futures contract which shows a nice buy pattern. There has been a large % decline that undercut the prior contract low, and then it formed a hammer type reversal and has moved back above that prior low. Also note the large red candlestick a couple days ago. Remember that for future charting purposes. After a long downtrend, when you see the biggest red bar/candle of the entire move down, that will often be very close to a capitulation low where all rest of the selling is exhausted. A similar thing happened in early Sept and is visible on the chart.

The bottom chart shows a similar set-up in the UNG ETF. It shows a similar undercut of the prior low and rebound above. There is a nice doji and then a bullish engulfing pattern today. I bought this ETF before the close and have a stop around the 8.50 area. This is not something I will track on the blog, but I thought these charts had several good examples of key components to a good entry. The exit will be the more difficult part but in this case, I would always wait for a move up then a swing low to form at a higher level before moving the stop up. Then at that point it is a game of moving the stop up below support as price moves higher and then use an objective indicator to sell when price gets overbought.

Anyway, I thought this was worth posting and buying. If it doesn't get stopped out, I will probably make a follow up post at some point on this just to show where to move the stop and what indicators I'm following for potential exit signals.