Saturday, January 22, 2011

UNG Watch

The U.S. Natural Gas Fund (UNG), an exchange-traded fund tracking the price of natural gas, pierced the upper line of the 55-day price channel on Friday, triggering bull phase under the my price-channel trading rules.

The upper line is at $6.39, and UNG reached a high of $6.48 before closing at $6.40, a penny above the breakout level.

Under my trading rules, I have these stop/loss scenarios and shall exit the position if UNG:

1)... closes below $6.39 on Monday and Tuesday.

2)... trades below $6.26 (5¢ below the low on breakout day, Friday).

3) ... trades below the lower 20-day channel line, now at $5.47.

4) ... the adx line rises above 40 and then turns down (the adx is now at 19.09).

UNG entered the prior channel bear phase on Aug. 19, 2010 at $7.04 and exited bear phase on Nov. 9, 2010 at $6.04, for a profit of 14%. Since then the stocks has been in neutral phase.

UNG concurrently moved to bull phase on the alternative pfe/pps analysis.

phase pfeppstrend

The signal gives UNG two concurrent bull phases, with an intervening neutral phase. The previous bull phase began on Jan. 3 at $6.31 and ended on Jan. 13 at $5.98 for a 3.7% loss.

UNG has tended to trade sideways more often than not in the past couple of years, a condition that leads to whipsaws. I'm interested to see if channel analysis can continue to wring some profit out of an issue that has such as unpromising price pattern.

The most recent swing high was set in June 2010, and the last significant swing low was on Dec. 22.

Reversal Levels
  • $8.84, +38.1% (swing high)
  • $6.57, +2.7% (200-day moving average)
  • $6.40 --- You are here.
  • $6.04, -5.6% (20-day moving average)
  • $5.93, -7.3% (50-day moving average)
  • $5.47, -14.5% (swing low)

On the slow-trading pfe/pps chart, UNG has been in bear phase since February 2009.

Monthly chart
phase pfeppstrend

I opened a bull position in UNG on Friday, buying $6 April call options at $70 per contract (a 9:1 ratio to the share price). The contract value, at present, moves 67¢ for every $1 move in the share price, so my effective leverage is 6:1.

The main issue here is whether four months out until the options expire is in fact sufficient for a slow-goer like channel analysis.

To avoid major time decay, I'll need to close the position by mid-March. If the bull phase is continuing, then I'll roll the position over to a new set of calls expiring later. The downside of that is the additional brokerage fees incurred.

Table Abbreviations:
  • pfe - Location of the polarized fractal efficiency line.
  • pps - Person's Proprietary Signal mode.
  • trend - Trend of the polarized fractal efficiency line.

Key to the PPS/PFE tables
phase bull phase
bear phase
pfe +100 and above
+50 to below 100
0 to below +50
below 0 to above -50
-50 to above -100
below -100
pps bull confirmation
bear confirmation
trend uptrend
no trend

More on the PFE/PPS analysis

Read a detailed explanation of the analytical tools and how they’re used, including trading rules.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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