Sunday, July 19, 2009

A Chart a Day #10: Natural Gas Continuous Contract

I'm gonna be boring and post pretty much the same chart I did yesterday for today, but there is good reason why I'm doing it. I think its important to note that an ETF chart can look significantly different from the underlying. Maybe even different enough to change your conclusions from the technical analysis. In my personal opinion, this natural gas continuous contract chart below doesn't change my expectation that nat gas prices will continue falling and take out the recent lows but it definitely looks a lot more healthy (bullish) than the UNG chart I posted yesterday.

The UNG chart from yesterday clearly shows a resumption of the long term downtrend since UNG made new multi year lows recently. On the other hand, the continuous contract pretty much held the low made back in April. Additionally, the 50 dma is much more flat on the continuous contract. I think that its fair to say that ETFs will always look more bearish than their underlying equity, whether thats futures or stocks or options, just because of fees and inefficiencies in the securitization mechanism. This is now famously, and extremely true in the case of leveraged ETFs like the Direxian Funds and the Proshares Ultras. There's not much else I wanted to say about this that a glance at these two charts won't tell you. My gut tells me that natural gas still needs to wipe out a ton of bottom fishers before it will be ready to begin a new bull market. I expect and hope that this will happen with price action but it could very well be the case that nat gas just sits in a narrow range and bores people out of the trade (and kills options via time decay). I also see divergences on all the indicators that I follow even on the continuous contract. Note how natural gas has matching highs in May and June while the RSI, CCI and stochastics all made obviously lower highs. I also don't like Friday's candle at all. It seems like you couldn't go wrong averaging in for the long haul but personally I'm waiting for you know what before I try getting long again (capitulation).

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