It was a vicious wipe-out in today’s session with nat-gas, UNG and futures down sharply.

Let’s summarize the recent action leading up to today:

Late Sunday evening:

Nat-gas pushed past upside resistance (in the overnight futures market) on Sunday, the 11^th. 

Once past resistance, price action stalled.  That’s a warning sign a reversal is imminent.

Early Monday morning:

By the time we got to the regular open on Monday, nat-gas was already in a reversal condition. 

Correspondingly, price action in UNG declined throughout the day and closed lower.

Tuesday, all day

Yesterday was an upward test of the reversal that failed to post a new daily high. 

Price closed lower and the stage is set.

Tuesday, overnight to Wednesday

At the open last night, the futures declined immediately and traded down about -5% to -5.5%, in the area equivalent to UNG ~ 12.04.

This morning opened even lower (UNG:  11.91) and then attempted to rally.  It looked like UNG was going to make higher it until later in the session when things fell apart.  UNG washed out and closed lower.

So, what does it all mean?

Working with a commodity tracking fund like UNG, means you have to track the actual commodity.  In this case that would be the current front month futures contract NGX20.

Looking at the price action of the futures, we see that during today’s wipe-out, towards the close, NGX20 bounced off well established support at the 2.600-area.

It was at this juncture where a long position was opened; as price was declining at the end of the day:  UNG @ 11.87, with a stop in the vicinity of 11.74-ish.

Wednesday overnight session

As of this post, 9:56 p.m. EST, NGX20 opened higher and is drifting higher.  This is expected if the bounce off support scenario is valid.

The weekly chart (below) of UNG shows that risk has been nearly removed … never completely, but a close as one can reason.

The expectation for tomorrow, Thursday, is continued action higher and out of the danger point. 

What’s in the EIA report is likely immaterial.  Sure, it provides an excuse for price to move.  However, probabilities are already set for continued upside.

UNG is at the danger point.  Price action can go either way.  If it continues lower after the EIA report, then we have probability of making new lows for the winter. 

New lows seem unlikely going in to fall/winter but anything can happen.

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.