Seeking Alpha

Growfast's  Instablog

Growfast
Send Message
Stock, Options, ETF and Commodities Investor; My educational background is in Computer Science and Accounting with significant entrepreneurial and Fortune 100 Corporate experience in Information Management and Technology services in industries including: Consulting, Oil and Gas, Manufacturing,... More
  • DGAZ Trade Strategy Update 34 comments
    Feb 26, 2014 7:16 PM | about stocks: DGAZ, UGAZ, BOIL, KOLD

    Many readers following my last article, "DGAZ - Are We There Yet?", here, have had a number of questions lately. I wrote the article while March contract prices for Natural Gas (NYSEMKT:NG), were spiking as high as 6.4, DGAZ was trading on the S&P GSCI NG Index that had already rolled over to April which was trading up to 5.2. I had many questions from readers on what would happen, and ventured to share my thoughts that there might be some upward pressure on the Apr NG contract, that the Mar contract would most likely come down some and that we would not be required to close the gap. And further, to the Title of the Article, seeking to determine if we had found the bottom in DGAZ yet.

    Well, we did have some upward pressure on the Apr contract, pretty much matching the DGAZ low we had seen from 02/05 of 2.74, hitting a low during normal trading hours of 2.75 on 2/24. Pre-market trading had lows of around 2.50 on both those days, but quickly pulled up as we entered normal trading hours.

    From there, times have been good for DGAZ and this has been the action we were looking for. Pre-market today, I watched prices at 3.68 on DGAZ and we closed at 3.61, while after hours, we have seen some prices at levels above the close.

    This is great news as we should have put in the bottom on DGAZ and should mostly be working on our uptrend from here - some assumptions and risk factors always associated, of course.

    Below, is the latest chart update on the DGAZ/UGAZ spread overlay.

    (click to enlarge)

    From this chart, notice the comparison of the spread on the left versus where we are today. I drew a flat trend line where DGAZ formed a double bottom in the first spread, and now you see the trend line matching on the current spread mapping our double bottom here. So, all things being equal about the recovery, we should expect to see some similarities going forward to what we saw in the prior spread up cycle for DGAZ.

    Notice how the next trend line slopes up a little, then there was a relatively flat line and the last leg up was a very steep upward move in price action for DGAZ. Of course, no guarantee we see this again - but this still is my expectation.

    Some early readers on articles mentioned being "stuck" in positions at higher DGAZ prices, while sitting and waiting for prices to come back - and concerns about whether they will. Apparently these readers were not able to follow the trail of articles I put out stating that we need to be actively managing these positions and re-positioning with various approaches suggested for doing this. No one should ever feel stuck in a position, as you can always sell, take losses and move on. So, my recommendation is, just as we saw this week, the rallies do come. If you can read the charts and follow the rallies, there should be clues about where one can sell out, say 1/4 or 1/2 of their position, then seek to buy back at lower prices. This may take a loss on the original basis, but it also earns part of that loss back. For example, this week, I sold off 1/4 of my position at 3.4 and bought back at 3.22. So, I earned back .18 from that reposition.

    If you view the prior spread on the chart, the ellipses show on the bull move in DGAZ, there were positions where one could have sold out on the good rallies, then waited for the opportunity to buy back in on lows a week or two later. We should see a similar pattern going forward as we aren't likely to see prices go in a smooth line. Guaranteed, we still have some volatility ahead and we want to make that volatility our friend.

    One more thing to mention from the 1st spread is, that from the double bottom, before we got to the price to exit that spread - and the pattern I hope we will see this time around, it took a period of 3 months+ to get there. So, I don't expect to see us hit a big price in DGAZ right away. I expect to see volatility (perhaps more and more extremes than in spread 1 - offering greater repositioning opportunity) along the trail. A buy and hold strategy, unless one was fortunate enough to buy and have a cost basis near the bottom, is not recommended - but, very well could turn out to be quite profitable. Just know that there is more risk to sitting in an original high basis position, then in continuing to work the reposition opportunities. If NG prices don't go back to near mid 3's/mmbtu and only get to a low of 4, we may not see some of the prices we would like.

    Lets review a snapshot of an NG chart to look at what transpired to answer some other questions I received from readers relative to why if NG fell from 6.2 to 5.5, asking why DGAZ did not move more.

    DGAZ underlying index methodology rolls NG contracts each month on the 5th through 9th business day of each month. Mar and Apr contracts had a very wide spread of over $1 - referred to as the widow maker spread. That spread created a great deal of anxiety for many readers - and even some anxiety for me as no one knows for sure whether a gap will remain or will close, or which contract would move to drive that close. But, one thing I knew is that since 2007, March has been a net injection month to storage and April contract delivery just wasn't likely to have fears of continuing to withdraw 250 bcf from storage as we did from a few weeks ago.

    When we rolled from the Mar contract to the Apr contract, we did not lose any value in DGAZ prices. Actually, in my last article, I showed that DGAZ was actually up a little. We did roll into the Apr contract trading at about NG 4.632 at the end of the roll, versus NG 5.223 for the Mar contract. In a way, that meant we lost some high NG price value to drop from (that would result in a rise in DGAZ) some would conclude. However, in my analysis, we came out FAR better via the roll methodology than had we still been in the Mar contract. Mar contract continued to climb to a peak of just under 6.4/mmbtu which would have slammed DGAZ down hard - much lower than our 2.5-2.75 bottom lows. And that, would have been very difficult to recover from. Instead, we were pressured lower in DGAZ while the Apr contract moved up to 5.2 but moving into the shift to show the Apr contract as front month, we got the very nice drop from 5.2 to the 4.5 level we are at now with a nice price increase in DGAZ. One should not be disappointed we didn't get a bigger increase in DGAZ from the fall of the Mar contract. If we had gotten that bigger move, it might have been from a low of $1 and we might not be at the prices we are today. Glad that is all behind us now.

    Looking forward:

    Tomorrow at 10:30 ET, the EIA will release the storage report findings for last week. Below is a poll on what we are likely to see on that report:

    (click to enlarge)

    Essentially, 77% of those polled, believe the EIA will report a US-wide Storage draw of 100-109 bcf or less. If the report is in the 100-109 bcf range, I think this will be somewhat bullish for DGAZ - confirming the drop in prices, milder weather patterns and the view that spring is certainly on its way headed into injection season. Believe me though, the bulls are not going to give up and will leverage bad weather, continuing low storage to get behind some rallies when they can in Natural Gas. And, if we are working our repositioning properly, we are going to welcome those opportunities to buy cheaper DGAZ shares to replace shares we sold at higher prices to enhance profits.

    If the report shows withdrawal is greater than 109 bcf, then the bulls could make a rally out of this tomorrow. From comments in the forum this poll was taken from however, the expectation seemed to be that estimates actually might be lower which seems to place a low probability for higher draw. If the bulls do manage to get a rally, it may be a good buy opportunity for DGAZ.

    In March, we will again roll contracts to the May contract. Below is a snapshot of current contracts:

    (click to enlarge)

    Notice the spread from Apr to May at last trade is less than a 7.2 cent difference. This roll will not likely create any anxiety as did this last one. The next roll will begin on 3/7 and end on 3/13 and should be uneventful. If we have volatility in prices, it will likely be reflected in both contracts moving together.

    Some lessons learned and reflections on future trading of leveraged ETF's - especially when trying to find a bottom or top, and the turn when the trend is working against you.

    1) Never get locked into a position. One can always sell a position and move on, or, sell portions and re-position.

    2) Consider breaking investment funds for the trade strategy into tranches and average costs in. What we have learned though is, sometimes the bottom can be much worse than what we originally thought. For this reason, when things begin to look worse than expected, always be willing to sell out a portion when you can see prices are headed lower and buy back lower, continuing to reposition.

    3) An even better approach is to buy both a long leveraged position and the inverse position. Example, when entering the DGAZ trade early (while the trend was up in NG), we could have bought with initial tranche a position in UGAZ and in DGAZ. Ratios can be worked out such that you have an offset in price movements neutralizing them. As UGAZ moved higher, we could have sold out at profit and added more DGAZ. Then, when we get a rally in DGAZ, we could have sold a little of the DGAZ position and added some UGAZ until we were comfortable we had found the bottom.

    Once comfortable the bottom is in, one could just work the DGAZ side of the trade selling out of the UGAZ position, or, could adjust the ratio and say hold 1/5 the amount in UGAZ as in DGAZ and continue to work the rallies and lows in the cycle with the buys and sells.

    3) Another approach can be to look to offset a position with opposing options. Sometimes this approach can be done with fewer investment dollars to hedge the risk of price action against one. An earlier article of mine presented a strategy for doing this with NUGT, another 3x leveraged ETF for Gold Miners.

    4) Regardless of approach taken a) to average in prices, b) to leverage both long and inverse positions, or c) to leverage options to hedge risk while working on the turn, one should always be prepared to sell on rallies, take losses at opportune times and free up cash to buy lower. It is amazing what it does to a traders psychology when with cash in hand, you are looking for and hoping the price action will rally against you so you can buy some cheap shares and lower your cost basis, rather than sit in a position where you watch your hard-earned dollars disappear on paper.

    On investments of course, a loss is never a loss until executed, but don't let the fear of taking losses and repositioning until you get your basis right and the risk out of the trade keep you from maximizing your profit opportunity. Stay flexible and agile in your trading so you can respond to and take advantage of whatever the market brings your way, rather than living with the dread of carrying large losses. It is a very different view of the world when you have some cash and only wish NG would go to 12/mmbtu so you could go all in with remaining cash and ride the train back the other way - rather than having bought when NG was 5 and living in fear while your investment dollars have continued to trend toward zero.

    Disclosure: I am long DGAZ.

    Additional disclosure: I also am long BOIL puts. I may trade and reposition DGAZ shares based on dynamics associated with the Natural Gas Market. I may also trade in and out of UGAZ, or buy/sell calls and puts on BOIL or KOLD (2X Leveraged ETFs on Natural Gas Index).The thoughts and opinions in this article, along with all stock talk posts made by the Author, are my own and are shared on the basis of helping others learn, to provoke other points of view that help us all on our journey to become better investors. My posts are never intended to provide investment advice. Investors should always view multiple sources of information in their due diligence process.

    Stocks: DGAZ, UGAZ, BOIL, KOLD
Back To Growfast's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (34)
Track new comments
  • vfc1955
    , contributor
    Comments (26) | Send Message
     
    Gracias for the good analysis. Definitely feel more comfortable after absorbing your analysis and the comments.

     

    For what it is worth, here in the NY metro area we have had only two 40 plus degrees days since last Thursday.

     

    A lot of folks live up here. This has been in unusually cold winter. We have had snow on the ground for a month.
    26 Feb, 07:59 PM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » vfc,

     

    I hear you on this winter. On my iPhone, I have weather programmed for a few cities, one of them being NY. It has been cold for quite some time without much relief for you. I've read that this has been a 100-year winter. Especially for East coast, Great Lakes and much of the Mid-West and South.

     

    A normal winter in Houston means, I get out my fleece jackets for about 5 days. I'm not one to wear coats often unless it is below 45 F. This year, I have had about 30 jacket days and about 10 where I wore a real coat. but, during the past 3 weeks, we've been back to the very warm and humid weather Houston is known for - until today. Tomorrow warms up a bit again and it will be hot here soon enough. For you in NY - we'll see.

     

    The continued cold in the NE could continue to keep some volatility in NG prices - especially those in the area and on storage draws there even when other regions storage might get injections.

     

    Glad the analysis helps and hope you get some great spring weather soon - for your enjoyment sake and for lower NG pricing.
    26 Feb, 08:15 PM Reply Like
  • Never Again
    , contributor
    Comments (6) | Send Message
     
    Great article Grow - insightful and well written. Now if we can overcome the fear of loss and execute the plan.
    26 Feb, 08:21 PM Reply Like
  • tfurman
    , contributor
    Comments (3) | Send Message
     
    Excellent analysis Growfast, your strategy is starting to sink into my thick head. Quite frankly I'm a Long buy and hold guy, just because I get caught waiting for the peak or bottom. I made a killing on UGAZ once on a hold, but am struggling to replicate it on the other side. Thanks again!
    26 Feb, 08:23 PM Reply Like
  • Robert Edwards
    , contributor
    Comments (412) | Send Message
     
    Excellent article, Randy, as always.

     

    I am with you that for the next few months, likely better to be positioned in DGAZ vs. UGAZ. However, there is one thing that bothers me.

     

    February NG popped and never corrected before going off the board very strong. March NG popped even more than Feb, but then corrected big time just before going off the board tomorrow. We may get a slight bounce in it tomorrow but lots of margin calls and great carnage recently on the longs who bought late. The big question will be what April does before the roll over in the next couple weeks into the May, and what May does when it becomes the contract that will drive the price of DGAZ.

     

    There is a group of traders (who knows their actual size and influence) who are anxious to recoup their losses if they got caught in the March crash, or maybe they already moved into the April contract and cashed out near the top and just want to do a repeat with the May. Anyway, they will be anxious to buy the April and then the May contract in hopes of hitting another investment home run, being long NG.

     

    I don't see them ultimately winning, but they might get UGAZ to pop some, while DGAZ takes a dive. I am wondering if a two-way approach may be in order for awhile until things calm down to see who is winning and then join that side.

     

    I see the NG bulls' strongest argument being the low levels left in the inventory at the end of March 2014. Of course they won't run out, but it may become a challenge to build up the inventory sufficiently to get us ready for next winter. If forecasts start coming out about a hot summer then that might increase electricity usage. More switching every day from coal to NG to run the electrical generators so there could be a summer NG pop to be concerned about this year. Then if the winter ends up starting out a bit light on inventories, with the first blast of cold air, they could cause panic and start predicting that we won't make it through the winter.

     

    The chances of two consecutive cold winters are extremely remote. Surely not another repeat of what we just experienced. However, just as no one saw the big surge in NG prices in the recent February and March contracts, the ripple effect should and probably will continue in the NG markets long after February and March are gone and just a memory. We have a different market now than we had a couple months ago, and things have yet to really be calmed down. I see volatility staying high for the foreseeable future. That means wild swings both up and down, may still be in the offing, with money to be made in UGAZ just as easy as DGAZ. The secret will be in getting the timing right. Anyone who can time the moves should be able to make a killing.

     

    I plan to sit back for a couple days and see what unfolds when March is off the board. I want to sit and watch the battle about to unfold between the bulls and the bears, and I wonder if it is too soon to pick the next 2-week trend. It will be curious to see which side, DGAZ or UGAZ, that takes the early lead. I believe it will be controlled by big money. The good news about big money is that they are big, so they can't make their move without leaving a very big footprint, and it should become obvious real quick, who is winning the war over the next directional move in Nat Gas.
    26 Feb, 08:25 PM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » Thanks, Robert. Reminds me of Alan Greenspan's book, "Age of Turbulence". Expect volatility. We don't know for sure whether the price trend will be up, or down - but the price will definitely go up and down and that is where the opportunity lies.

     

    In what you communicated and how I think about Natural Gas, the time frame makes a difference - whether pricing for spring considerations, summer, fall or, going into next winter. Interesting times are ahead and we are dependent on big money traders, as well as industry (upstream and midstream), and trade with foreign countries as to what the outcomes will be.
    26 Feb, 09:43 PM Reply Like
  • kahoward2734
    , contributor
    Comments (5) | Send Message
     
    Great article Randy! I have only bought GLD and X as far as commodities goes so I am eager to learn more about the ways to play Nat Gas. Keep up the great articles!
    26 Feb, 08:44 PM Reply Like
  • shopvac20
    , contributor
    Comments (7) | Send Message
     
    Grow, I have been playing DGAZ with you for a couple months now, I have had a lot of luck with buying, then selling for a decent profit then re-positioning all within DGAZ. I have not yet added UGAZ while waiting to re position in DGAZ at these levels because I have more confidence in the Bears of NG at the moment then I do the bulls. however between your and REs analysis.. I think it would not hurt to scalp some off the top with UGAZ when the time is right.

     

    Currently long, heavy and green in DGAZ
    27 Feb, 12:08 AM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » Fantastic to see that you have managed to work your position into the green, shop. You certainly managed to work on the repositioning along the way to move your cost basis down and go strong when we got near the bottom.
    27 Feb, 07:51 AM Reply Like
  • GJN
    , contributor
    Comments (52) | Send Message
     
    Thanks again for a great article. Keep up the good work!
    27 Feb, 12:18 AM Reply Like
  • zaw77
    , contributor
    Comments (44) | Send Message
     
    Thx, Grow for the update. Robert - your comments are also very appreciated.
    I could manage to reposition in $DGAZ and made little money with $UGAZ last two days, my avg. is now $3.62, so I sold 50% in AM and hold now 2/4 - going to sold out today if we pop again.
    27 Feb, 03:01 AM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » We had some good bullish action again today for DGAZ. A number of folks on Robert's forum made some good trades.
    Today, my own actions were:
    - Sold some BOIL puts for a nice profit
    - Bot a block of shares at 3.56 and sold at 3.70 for a scalp
    - Sold some of DGAZ trading shares - separate from core position, at 3.76 in the After Market and will be using that cash to find lower prices in DGAZ when the bulls run NG again (may have to be patient for a catalyst).
    - In the meantime, if daily ranges are provided, may try to run some further scalps with the funds.
    27 Feb, 05:57 PM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » Correction on the BOIL puts. Covered the open put positions previously bought. This was not the selling of put options to capture premium.
    27 Feb, 06:01 PM Reply Like
  • tfurman
    , contributor
    Comments (3) | Send Message
     
    Ok, EIA report is out, -95Bcf, much less than the 105-109 range mentioned. However, DGAZ falls and UGAZ pops immediately on the news. Shouldn't it be the other way around?
    28 Feb, 01:41 AM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » Sometimes we get the fake out rally, which we did. But, look at what NG price and DGAZ did for the rest of the day. Even highs so far this morning don't put us at the levels in DGAZ that were where we were before the report.
    28 Feb, 08:33 AM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » Replaced DGAZ shares sold yesterday at 3.76, with shares purchased at 3.52 and 3.53 in pre-market today.
    28 Feb, 09:31 AM Reply Like
  • tfurman
    , contributor
    Comments (3) | Send Message
     
    "Major Winter Storm Pounds", yet NG is falling and DGAZ is up slightly, is this an indication of the bottom? With the Ukrainian tension, I would think if the market was looking for a reason to push NG up, it would. Since it hasn't I'm feeling more comfortable. However, we will start rolling into the May Contracts on March 5th-9th correct?
    3 Mar, 05:50 PM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » tfurman,

     

    The roll starts on March 7th (the 5th business day) and completes on the 13th (the 9th business day) of the month. The contracts have a little more spread now, but basically, I see this upcoming roll as being uneventful (the roll itself).

     

    I think we rallied today based on the cold weather, but all the signs are still there that winter is ending, we will be entering spring and demand will drop substantially. On Thursday, the Storage report will be for last week - a week when we had warmer weather across most of the US. Only the NE should show a good size withdrawal again.

     

    I see us in the near future staying in the trading ranges we have been in. We found a high in the 4.74 area roughly and we have a low in the 4.46 area. I think we will stay in this area for at least through the Storage report with opportunity to trade the volatility. I'm hopeful tonight the Asia trading sessions bring us a small buy opportunity in the morning and we see highs again in DGAZ tomorrow afternoon - but we'll have to see what the action is.
    3 Mar, 06:48 PM Reply Like
  • 11036321
    , contributor
    Comments (4) | Send Message
     
    Well... I think a lot of us thought we'd be eating at a soup kitchen today but instead it looks more like Morton's Steak House. C'mon Randy, talk to us, what's going on?!
    3 Mar, 06:07 PM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » User 110...,

     

    Very glad to hear you will be having dinner at Morton's! Yes, today was a good day for DGAZ holders. The US NG market is so far unaffected by the tensions in the Ukraine. These for the most part are completely separate markets so, my anticipation is there will be little to no effect on our market - unless something drastic changes this view.

     

    I offloaded 1/4 of my position today at 3.75 in DGAZ, to look for opportunity to again reposition those shares buying in at lower prices. I've now worked my basis down to 3.4 and some of the readers have even gotten their basis in lower than that.

     

    I will work on another article coming out here soon.... Still thinking we will trade for the next couple days in the range we have been in with NG - 4.46 to 4.75 and plan to continue to trade that volatility. Tomorrow I will start looking at information to help anticipate what will be in store from the storage report and include that in further analysis.
    3 Mar, 06:53 PM Reply Like
  • fwsk
    , contributor
    Comments (3) | Send Message
     
    love your articles.
    At what price will you sell all your dgaz shares? Do you use stoploss?
    thanks
    3 Mar, 08:29 PM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » fwsk,

     

    I don't have a refined price target just yet, but my best guess is at this point, that it will be somewhere between about 7.50 and 12.00, all dependent on my original thesis and looking for the DGAZ/UGAZ crossover. Dependencies will be on NG pricing relative to dynamics in the market, behavior and performance characteristics of UGAZ and DGAZ and other market factors. I will seek to address this a bit more in my next article - working on it now and hope to publish later tonight or tomorrow morning (US times).

     

    One of the reasons I have been working to continue repositioning my cost basis and taking profits along the way is, that the original assumptions in my thesis may work out - or they may not. In the meantime, I will be enhancing profits even if all assumptions play out and we do get back to 10 to 12 range in DGAZ. If we only get back to 7, I want us all to trade profitably as well. If we are profitable trading to 7, then it only gets better if we get back to the original target range.
    3 Mar, 10:52 PM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » Regarding your question on Stop Losses, I am not using Stop Losses. I do keep an eye on the pricing levels daily to ensure I know where the ranges I want to be in are. And, if I'm doing the right things working on repositioning shares, I've always got some cash when prices are going lower that I welcome really low DGAZ (within reason of course) and assuming my estimated ranges.

     

    I don't like to use stop losses because when I do, too often my stops are taken out at exactly the wrong time and immediately after my stop is taken out, we rally. If I was in a position where I may not be able to watch prices and act on them for a couple weeks, I might use stop losses on extreme levels for some protection - or, put in place protective hedge positions with UGAZ or calls on BOIL etc.
    3 Mar, 10:56 PM Reply Like
  • vfc1955
    , contributor
    Comments (26) | Send Message
     
    muito obrigado for keeping us abreast of your thoughts
    3 Mar, 09:22 PM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » vfc,

     

    De Nada. I'm very happy you enjoy reading them - and, I hope they help you to learn and trade more profitably. Certainly enjoy your input and the collaborations with others.
    3 Mar, 11:00 PM Reply Like
  • vfc1955
    , contributor
    Comments (26) | Send Message
     
    I have learned quite a bit over the past month on NG from your well thought out articles.

     

    as a newbie, I jumped in more than I should have when DGAZ was in the low 4.30s. But thanks to your articles and the insightful comments of your readers I have gained the skills to recover a good portion of my real and paper loses.

     

    as a plus, the trading skills I have learned and employed over the past month on DGAZ and UGAZ will come in well in the future.

     

    muchas gracias again for your work

     

    I wish I were in Houston in March. Miss the Rodeo - Live Stock show in February.
    4 Mar, 09:20 AM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » vfc,

     

    Very good to hear on the recovery - and, hopefully you are finding ways to profit from your positions now too. I had a lot of work to do myself as my earliest entries were in DGAZ while it was in the 7's, so had to work to reposition as we continued the moves lower, but got it worked out.

     

    Houston would love to have you visit. The Livestock show and rodeo is active, alive and well right now. This past weekend, the trail riders paraded past our neighborhood. It is always enjoyable to see.
    4 Mar, 09:46 AM Reply Like
  • MagicQuote2014
    , contributor
    Comments (76) | Send Message
     
    Overview and technical comment:
    Currently I have no position in $DGAZ or $UGAZ but I have previously if you follow this thread.
    1. Currently DGAZ shows over turning over from overbought position at 3.67 close. Guidance suggest waiting for rise above dip below 3.05 if it goes below 3.05 in next several trading days.
    Intervening variables of 1. Ukraine (effect on spring buildup and possible increased European exports if a blockade occurs) and 2."Rollover contango to next contract",3. Eastern weather patterns, and 4. Hub retail distribution bottlenecks
    Summary: Above 4 variables now make the MQ Trader less enthusiastic for extracting short term profits from the setup for a Natural Gas . (see profile on overriding technical philosophy.)
    Good Luck Traders.
    Looking at Currencies and Gold action today. Geopolitical jawboning creating more potential opportunities.
    3 Mar, 11:08 PM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » MQ,

     

    Great input. Regarding:
    1) I hope you are right and we get opportunity to purchase more DGAZ at 3.05 or better (just not a new bottom).
    2) Ukraine effect - No increase in exports in LNG expected yet, but if we start calculating that move if things go far worse - which I really don't think they will - at least not yet, then I will have to re-calculate.
    3) May contract roll coming up and spread widened a bit today. Watching for impact and want to see the spread stay close ideally. Would like to see the May contract pull up to match levels of Apr contract as it is lower at present.
    4) Current weather pattern forecasts pretty much baked in. Dealing with surprises will be key.
    5) Distribution bottlenecks continue in the NE, although that has limited effect on the broader view for contracts, although, could become more of a risk factor if region inventories relative to this issue become dangerously low. Something to watch for sure.

     

    I'm in cash on 1/4 of my position, looking for a lower entry. Thank you for your input and look forward to updates from your thoughts and calculations as well.
    4 Mar, 12:18 AM Reply Like
  • kahoward2734
    , contributor
    Comments (5) | Send Message
     
    In pre-market trading it is down 8.17% to $3.37 @9:23 A.M est
    4 Mar, 09:24 AM Reply Like
  • 11036321
    , contributor
    Comments (4) | Send Message
     
    Yeah, admittedly... I'm a bag holder here... and already standing in line at an inner city soup kitchen, lots of down and outs in front of me and in back of me, many families here with children, most of the children clutching their mommies and daddies as the kids in rich cars drive by sticking their tongues out at them, at me, at all of us, nobody is talking, very solemn, very quiet. Most like me, looking at the ground with shame in their eyes. Used public transportation (the bus) to get here. Dreams of wealth and a better life fading fast. This thing's going to .01. If I could, I would give them all, especially the families with children, gift certificates to a nice restaurant to forget about life for awhile and enjoy a nice meal, even if only for a moment.

     

    On the EIA website, there's a graph that shows the price of NG, rallying skyward until whats looks to be around August 2014... check it out.
    5 Mar, 01:49 AM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » User1103...

     

    Simple solution for your POV, if they will let you log into a network from the soup kitchen. Put some UGAZ into your portfolio to ride NG up to the sky if that is where you think it is going.
    5 Mar, 09:55 AM Reply Like
  • ta8
    , contributor
    Comments (2) | Send Message
     
    Grow - can you educate me on how the NG futures roll on the 5th business day to 13th business day affect DGAZ and what to look out for during those days? If May's NG future price is lower than April's, should we expect DGAZ to go higher?

     

    Just started trading NG..Thanks for all your insight!
    5 Mar, 03:01 PM Reply Like
  • Growfast
    , contributor
    Comments (273) | Send Message
     
    Author’s reply » ta8,

     

    The roll goes like this for weighting on the close:
    ------------Apr May
    1st day-----.8 .2
    2nd day-----.6 .4
    3rd day-----.4 .6
    4th day-----.2 .8
    5th day-----.0 1.0

     

    This smooths the roll such that there is minimal effect on pricing from the roll between contracts. If NG pricing is moving up or down and moving the contracts, that will still be reflected in the pricing with the formula.

     

    With a small spread between contracts, there really isn't much effect. When we transitioned from Mar to Apr, there was a large spread. What that meant for DGAZ was:

     

    - Price of DGAZ was slightly higher for DGAZ after the roll
    - DGAZ was after the roll priced on a lower priced Apr contract (meaning, we lost some opportunity for the advantage of a bigger rally moving from the highs of the Mar contract). You would think this might be a bad thing, but,
    - DGAZ did not have to get hammered in the dirt while we were trading on the Apr contract and the Mar contract went from about 5.4 at the roll, to the 6.4 spike.
    5 Mar, 03:15 PM Reply Like
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.