Natural Gas First: Who’s Next ?

Is it Corn?

So, it begins.

This link to an article where lawmakers (using that term loosely) are attempting to limit the export of natural gas.

We’ve already discussed the likelihood of some type of corn or grain embargo as prices continue higher.

Now, we have a similar (limit export) event but in the energy sector.

Recall, the statement from that prior (corn) post:

“What we’re looking for here, is some kind of Jimmy Carter type stunt where corn exports are halted in the name of ‘national security’ or some such thing.”

And this, from the same post:

“Of course, if that happens, corn is likely to crash (like it did last time) if only temporarily.”

So, let’s take a look at what happened to natural gas (UNG), when our lawmaking geniuses proposed to limit exports.

Daily Chart Natural Gas, UNG:

So, when this type of announcement comes out, the market takes a major hit … just like it’s forecast to do if we get something similar in corn (not advice, not a recommendation).

Now, if the overall long-term objective, is to wipe-out the food supply, wouldn’t you want some kind of dry run to make sure markets are going to respond as expected?

So, let’s try natural gas first, shall we?

Remember that with corn, it will (if it happens) be different.

Because of the elevated fertilizer prices, a forced lowering of the corn market may be all that’s needed to make sure very little-to-no corn gets planted … and Voila!

For a reminder on just what exactly we’re dealing with here, please reference this link.

Moving on to other markets, we have some housekeeping in the gold mining sector.

Junior Miners, GDXJ:

As stated in the pre-market update yesterday, the finger was on the sell trigger.

After the first hour of trade, it was obvious higher prices were in the offing.

Not willing to wait through a correction to a higher retrace level, the short position was closed-out (not advice, not a recommendation).

The table below summarizes the entire round-trip. It should be somewhat self-explanatory.

A hypothetical $10,000 was used as the starting amount. Any additions to the position used margin.

The end result as shown, approximately, +21%, gain.

Stay Tuned

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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.

The Danger Point®, trade mark: No. 6,505,279

Before The Open

As expected from the November 1st, update, gold pre-market shows a gap-higher open.   Trading is around 178.80 – 179.00 which is a little above the resistance area shown in the original chart.

After the first hour of trading, the plan is to provide an update to see if there’s still a possibility of a reversal at this juncture (not advice, not a recommendation).

Correspondingly, the mining sectors, GDX, GDXJ are up in pre-market with inverse DUST and JDST, down. 

However, the big hitter, NEM is right at a 50% retrace off the lows of October 28th.  This is a possible area to stall and potentially resume a downward (or sideways) trend.

Other market actions that may have significant impact on silver/gold, are the four-standard deviation in the bonds to the short side.

As Steven Van Metre indicates, none of us reading this (in our lifetimes) are likely to ever see a set-up like this again.  It’s an historic extreme.

Bonds are down in pre-market along with the dollar … using UUP as the proxy.

The dollar has bottomed and is now in position to rally; completely opposite the established consensus.

At least twice now, Van Metre has mentioned Wyckoff in his updates.  He appears to be well aware of the significance.

In other markets, a position was opened in nat-gas, UNG at the last session.  That position was closed in the pre-market session with a slight ding of -1.2% to the managed account.

Even with record cold hitting large portions of the country, nat-gas can’t seem to get going to the upside.  Now, with its current action there may be a probability of lower prices (or stagnant action) going into winter.

We are leaving nat-gas alone for now and focusing on the historic bond set up and the potential effects when it all unravels.

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.

Before The Open

Gold is set to open higher as expected.  Corn is set to open lower … not expected and nat-gas looks like it will test its trend-line.

The only position currently open is CORN. 

Lower CORN open in the works, crop report due at the upcoming close and price action hugging the lows. We’re at the danger point three days in a row; planning to exit CORN (not a recommendation, not advice).

Taking the markets on the watch list into account, the opportunity appears to be nat-gas, UNG.

If price action contacts the trend-line and begins to pull away, there is a potential confirmation and trade set-up.

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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.

The Squeeze Is On

Pre market activity (8:31 a.m. EST) has TLT trading up +0.74, at 161.29, which is above the target level set in the last update.

We’ve already laid the groundwork for the ‘speculator’s’ short position in bonds as the largest in history.

It’s the ‘commercials’ that know their markets and in this case (according to Steven Van Metre), the commercials are the banks.

Isn’t it interesting. The banks always get their money, right?

Well, that may be about to happen now, as well.

Just a quick digression from today’s update and concerning the Van Metre link above. At time stamp 14:29, he shows a Wyckoff accumulation schematic. Nice.

From a trading standpoint, there are leveraged bond funds such as TMF (not advice, not a recommendation).

However, this firm has never traded that vehicle and is choosing to be short the junior gold miners (JDST) as well as long natural gas (UNG) for its current positioning.

Natural gas (UNG) for a seasonal trade … with some potential supply disruptions thrown in; the Junior Gold Miner short position (JDST) to work the ‘deflation’ side of what’s going on.

Reports here and here, provide documentation on the thinking behind those positions.  Searching for UNG and JDST will give the full gamut of research.

Back to the markets. If we’re doing our job right and there’s a huge down-draft, we’ll already be in position to profit as a matter of course.

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.

EIA Report: Tight Supplies

The EIA report write up says that natural gas inventories are tight.

For your reading enjoyment, there’s a quote saying to the effect; ‘we do not anticipate a cold winter’.

Well, getting back to the front line of what’s really happening; even now in October, there’s already record cold in Cheyenne

Let’s see what happens next. 

As of this post, 12:58 p.m. EST, UNG is moving higher (at UNG 12.58) and off the lows of the day.

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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.

Nat-Gas: Trend Contact

Nat-gas, UNG contacts its trend-line on a low volume day.

The daily chart is modified to show pre-market activity. It has UNG posting a low of 10.66, about one hour before the regular session, October 2nd.

With that low, we can see three trend line contact points … which includes today’s contact.

The expectation is for nat-gas to inflect upward at this point and continue higher as we head into the fall and winter months.

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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.

Nat-Gas: UNG, Mid-Session

As expected, nat-gas is moving to the upside. 

The original entry from the last session is well in the green; the trade has been increased by 50%.

‘Pyramiding’ is a classic time-tested method for market speculation.  Wyckoff discussed this technique in his first publication of “The Ticker”, back in 1907.

That specific (first edition, 1907) text can be found here.  Scroll to pages 17 – 18, for “Rules of a Successful Speculator”.

Other Wyckoff links:

Compilation book is here.

Wyckoff “Ticker” publications are here.

Continuing on with nat-gas, as of this post (12:58 p.m., EST), the futures NGX20 is right at resistance in the 2.800 area.  This corresponds to roughly UNG @ 12.45.

We’ll see if it pushes through to the upside.  If not, then we can expect some kind of downward test at the next session, tomorrow.

At this point with NGX20 trading at approximately 2.795, it looks like it can go a little higher before it hits a limit-up for the day.

Nat-gas futures contract limit data is here.

Barring some unforeseen event that could cause nat-gas prices to collapse, a position is now open that will allow participation in an expected price rise going into the fall and winter months.

Potential exit targets have been established as identified in this report, here.

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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.

Natural Gas: Danger Point

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 11th

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.

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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.

Dark, Light, Dark Light, Dark Light

Remember this clip from Horton Hears A Who? … That’s about how the financial press paints it concerning weather forecasting for natural gas:  Hot, Cold, Hot Cold, Hot, Cold.

In a previous update, here, we said that weather forecasting was essentially useless when it came to trading nat-gas or the tracking fund UNG.

Just looking at the past week’s forecasting shows that it’s true.

Instead of researching fundamentals, our focus is entirely on price action. 

Going back briefly, the October 4th update said this:

At pivots, this price action scenario is nearly always the case. 

UNG moved higher immediately at the next session and has not been at those levels (11.10 – 11.20) since.

We are still in a reversal (higher) until proven otherwise.  At this juncture and possibly at the next open nat-gas will frustrate every one that’s long, yet again.

Today’s action was typical:  A gap-down open that immediately pushes higher and then higher still until until late in the session.  At that point, price action began to erode.  Intra-day gains turned to losses and UNG closed near where it started

Standing on the sidelines and from an entry standpoint, the current (overnight) situation is removing risk.  The farther down the retrace, the more risk is removed … up to a point.

If the current position in the futures (NGX20) is maintained to the morning open, UNG will begin trading right around the 12.00 – area.

Note, there is nothing that says a reversal upward has to continue. 

That’s the way of the markets.  It’s hard enough to monitor and decipher what the price action is telling us; let alone confusing the situation even further with some supposed fundamental “reasons”.

The current reversal was called to the day (October 4th).  Let that be evidence enough of apparent price action skill in this particular market:  Not a recommendation, not advice and certainly no guarantee of future success.

Anything can happen.

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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.

Natural Gas: Too Late To Get In?

The short answer is probably no. 

The long answer (not a recommendation, not advice) is nat-gas can be extremely frustrating to trade.

The gap-up open today, dissipated and closed lower.  Currently, in the overnight session nat-gas is lower still, by -2.05%. to -2.15%

Based on that data, the daily chart of UNG has been updated to show where trading action is taking place overnight.

Note the trend-line:

If price action contacts this line again and bounces off to the upside, it’s an excellent confirmation … possibly leading all the way to the December – January (planned exit) time frame

Coming up in a few days is the EIA Natural Gas report; due out on Thursday at 10:30 a.m.

Price action as a result of the report (just after release) may give an opportunity for an entry provided the overall trend remains to the up-side.

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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.