The last update said that nat-gas (UNG) would have a test lower to wash out any late-comers to the rally.
Price action indeed went through a deep retrace/test and also a secondary test during today’s session.
This is normal market behavior at reversals.
A test can always fail with the market resuming its downward trajectory. However, at this juncture, probabilities favor continuation of the reversal to higher prices (not advice, not a recommendation).
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There’s a lot happening in the biotech sector.
Today, Wednesday, 10/7/20, will be a Fibonacci 144 days from the low of March 16th, this year.
If the all-time high (IBB) was reached on July 20th, Fibonacci day 89 (minus 1), then today may be a critical juncture for the sector.
The current move off the low on September 4th, could be a counter-trend move.
Using the Fibonacci projection tool … a standard addition to most chart packages, we see a possible 1:1, a-b-c projection to the 141.28-area.
Counter trend moves (a-b-c), typically have equal ‘a’ and ‘c’ waves. The ‘b’’ wave in this case was 76.4%, of the ‘a’ wave … deeper (weaker) than normal.
It just so happens the 141.28- area of IBB also corresponds to a Fibonacci retrace of 76.4% from the 9/4/20, low.
If IBB reaches those levels today and stalls, it’s an indication that at minimum, the market respects this area.
What happens next?
To go short (not advice, not a recommendation) is selling into a rising market.
Technical indicators, MACD, moving averages are all pointing up both on daily and weekly .. although weekly MACD lines are still in a bearish cross-over.
Certainly it’s the danger point. That’s what we’re looking for.
It’s the trader’s discretion on what to do if/when IBB reaches 141.28. From this firm’s perspective, price action behavior itself at the projected level will be the arbiter.
Nat-gas launched into a 10.5% gain (close to top) at the last session.
The earlier update had identified a reversal:
“At pivots, this price action scenario is nearly always the case.”
There was a good probability of a move and that’s what we got.
Now, typical action under such conditions is to come back (briefly) for a test.
The potential location for that test is on the chart. However, UNG can do what it wants and there’s no guarantee.
Such a brisk up-move move brings in a crowd. We have to figure there were late comers to the breakout.
Those late to the party need to be washed out; or at least frustrated so they’re too quick to exit as the market is rising.
The test location shown may be the area that pushes out the weak.
It may take all day or a couple of days. Look for volume (not advice, not a recommendation) to contract on the test.
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As with natural gas, UNG discussed here, IBB is also at a danger point.
Price action penetrated resistance and closed above that resistance; giving the appearance of strength.
The chart shows Fibonacci time correlations. Biotech, IBB appears to have form and time structure.
To use Wyckoff parlance, IBB is in an up-thrust; a potential reversal condition.
It’s true that a weekly time correlation appears to be in effect as well; At least at this juncture. However, it’s price action itself that’s the final arbiter.
If there’s a retrace below support, then a test (form the underside), we’ve got a good indication of reversal
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At this juncture, downward pressure on nat-gas (UNG) has evaporated.
At pivots, this price action scenario is nearly always the case.
Way back a century ago, the father of technical analysis, Wyckoff said it best; ‘It’s as if the weight of a feather could move the market in either direction.’
This location was dubbed by his acquaintance, Livermore, as the ‘danger point’.
It’s the point of least risk; Where the margin (gain or loss) of being right or wrong is narrow and easy to see.
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Biotech (IBB) is trending higher and may reach a top right during the election.
If that happens and then reverses, it may be posting a bearish MACD divergence on the weekly chart.
From the low during the week of March 20th, we see a potential Fibonacci time correlation in effect. A pull back low occurred during the week of June 12th, a Fibonacci 13.
Interestingly, the week of November 6th, is Fibonacci Week 34.
On the sidelines for now; watching for a trade set-up.
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It was a wild ride in the futures market starting this morning around 6:30 a.m. EST.
Nat-gas, is similar to silver where it likes to spike lower or higher as its terminating move.
From a UNG standpoint, that lower pre-market spike was all the way down to 10.66.
Price action recovered and was essentially back in the previous day’s trading range before the regular open.
As done yesterday, the chart of UNG has been modified to show the NGX20, futures activity.
Doing so, paints a more realistic picture of what’s going on.
As of this update, UNG is at 11.16 and has already posted a new daily high (a classical analysis buy signal).
Using the weather:
As we enter a grand solar minimum, weather forecasting (to predict nat-gas moves) is not viable.
The weather is already extreme and will continue.
Earthquake activity has picked up dramatically … it’s off the scale; no pun intended. In addition, we’ve got weather extremes, crop failures and volcanic activity.
All of this is happening at the same time. The source at this link does an excellent job of monitoring earthquakes and associated phenomena.
These two links, here and here are good source for weather extremes and crop failures.
Unanticipated weather extremes could launch nat-gas, UNG to levels atypical for a seasonal (winter) position.
One well placed earthquake fracturing gas distribution lines, could do the same.
Typical nat-gas move:
A seasonal nat-gas move, starts around late September, early October and tops out just before December.
The possibility of weather extremes could push that top out into January or February … completely unexpected.
Price action is the key. So far, it’s moving off the danger point to slightly higher levels. We’ve opened a sizeable position and will follow the price action on up with a stop as needed.
Depending on how that action behaves, the current stop level (not advice, not a recommendation) is tentatively set close to yesterday’s low: UNG 10.98
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Natural gas trades as a futures contract nearly 24/7. Therefore, the daily chart of UNG is misleading.
Not shown on the standard UNG chart is the most recent low.
That low, in the futures market was right around 7:30 a.m EST on Wednesday, September 31st.
By looking at a chart of UNG, one would think the low for nat-gas occurred today. Not so.
We’ve modified the UNG chart below to represent recent price action on the November contract (NGX20), not shown on UNG.
The low from yesterday’s action is clear. Also clear is today failed to penetrate that low even though a new daily low appears on the unaltered chart of UNG.
In all, it means were at the danger point for natural gas.
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Price action itself has negated the breakdown scenario in Amgen (AMGN).
Instead, we now have a wedge that’s forecasting a move higher.
Using a measure move off a wedge breakout (yet to occur), we can project AMGN to the 290 area.
The expectation is the overall biotech index (IBB) will move higher as well. If so, there’s a potential to form a bearish weekly MACD divergence if IBB makes new highs.
The Nat-Gas report is out tomorrow. Price action is set to move higher.
It’s not perfect. A better set-up would have more volume at the support penetration.
So, we’ll see how it goes early in Thursday’s session.
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The Danger Point® 