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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 - Higher Levels Ahead 35 comments
    Mar 19, 2014 6:08 PM | about stocks: DGAZ, UGAZ, BOIL, KOLD

    The last week has been one of little excitement in Natural Gas, UGAZ, DGAZ, BOIL, KOLD, UNG and other NG related investments as trading ranges during our seasonal transition have been very tight with bulls and bears pretty much agreeing on the price. This weeks storage report tomorrow, reporting on last weeks withdrawal could be the real beginning of the transition. Last weeks report was on a -195bcf withdrawal which gave a reason for the bulls to hang on and hold prices higher. This weeks report, while not yet reporting net injections, is the first report signaling a major change in NG demand foretelling what lies ahead.

    The bulls may argue that Storage is at an all time low, we may go below the 1tcf levels, but what is different now is the Supply side opportunity. If we were at low storage levels and exploration and production efforts were not able to find abundant NG, things would be different. But, in my opinion, with ample supply, prices should fall when demand falls and injection season begins in full force. My trade thesis is based on looking for exit in the April/May/June time frame most likely and I'm still looking for the DGAZ crossover above UGAZ. But, I will admit, there are of course still some risks to the thesis which is one reason why I continue to suggest traders buy the dips and sell the rallies to profit from volatility along the bullish move. Not only does this help to hedge against the risk, but also looks to maximize profits along the way.

    Here is the Storage poll for the report tomorrow:

    (click to enlarge)

    The estimate I read that I'm keying in on is for estimated draw of about -58bcf.

    Here is a 1 month chart on DGAZ:

    (click to enlarge)

    You can see from this that what I suggested after we confirmed the double bottom in DGAZ, is that we have in fact experienced the bullish trend with higher highs and higher lows with the most progress on higher lows while the trading range has narrowed.

    Here is the 1 month chart on UGAZ:

    (click to enlarge)

    Here we see the counter-trending bearish move with lower highs and lower lows, with the greatest progress on lower highs while the trading range has narrowed.

    And, here is the updated chart on the DGAZ/UGAZ spread using a compare on base DGAZ chart with the overlay of DGAZ.

    (click to enlarge)

    What this chart shows is how we have moved off the extreme highs from the spikes UGAZ had and the extreme low dips DGAZ experienced and both have begun to slowly work on their convergence. I am eager to see if this week provides the catalyst following the report tomorrow to break to new lows from this trend in UGAZ and to new highs in this convergence from DGAZ as we work our way to the crossover. Viewing this chart, if UGAZ falls 50%, and DGAZ climbs 100%, that would put UGAZ at roughly 12.375 and DGAZ at 7.10. So for the crossover, if it is going to happen, there will be more upside in DGAZ from there and downside in UGAZ. In order for this to happen, we will need to see a good bit of drop in the price of Natural Gas over the next few months starting in the near future and for investors to turn bearish in their overall sentiment on the pricing for NG during the next few months.

    Here is a 6 month chart of spot Natural Gas and the chart with MACD following it.

    (click to enlarge)(click to enlarge)

    From this chart, it appears the 50-day Moving Average is providing strong resistance on the upside, and on the low side, we have not yet retreated to test the 4.25 support level, which I am looking for us to do following the storage report tomorrow, or at least by the following week. I would expect the bulls to try to rally some off that support, while eventually we break through and work our way to the 4.0 level support.

    Then, the question over the next few months becomes, will NG pricing during injection season, while building up the low storage levels, get us back to the level of the 3.5 support or, will it stop somewhere between 3.5 and 4.0.

    While I state all of the above, one thing to note is the MACD on this chart is beginning to trend upwards. This on its own might provide some suggestion that Natural Gas prices could turn bullish if MACD crosses over and becomes positive. Volume is continuing lower, demand is falling rapidly and injection season is quite near which I believe will head off any attempts for NG to make a bullish break out. Although, I will be watching in case signals begin to change my thinking at some point. For now, we are right on course on my thesis and patiently waiting for our DGAZ increases.

    Conclusion:

    - Looking for DGAZ upside to break out of our recent trading range, after any potential small bullish rally in NG following the storage report tomorrow

    - Look to continue buying dips at the low end of the trading range and selling significant rallies. (This week I didn't trade much as the range was too tight).

    - There continues to be risk to the overall thesis, but I'm still looking for and hopeful we will see the DGAZ crossover versus UGAZ in the April/May/June time frame. If this does come to pass, we will see DGAZ levels much higher than we are at present. If the risks preclude this from happening, we will come out profitable by trading the volatility and ranges we are given and from the re-adjustments we have continued to work on our positions.

    At present, I am still holding my core DGAZ position with cost basis now around 3.6 and holding 1/3 of my original position in BOIL puts, after selling the other 2/3 of the BOIL put position for nice profit. I will be watching for opportunities to re-enter trading shares, or take on more options positions when pricing levels are attractive in my analysis.

    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
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Comments (35)
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  • ricejudicata
    , contributor
    Comments (44) | Send Message
     
    Thanks for the write up, Grow. Seems the weather holding it up, but I can't see more than a couple weeks before storage begins to build.
    19 Mar 2014, 06:56 PM Reply Like
  • MkZSM
    , contributor
    Comments (268) | Send Message
     
    Nice write up, I think the trend should be your friend. Yes there is less in storage but I think it will be replenished. Depending on the injection rate, if we don't catch up by SEP/OCT then look for explosive speculation of NG pricing into next winter which could be exciting for ugaz again!
    19 Mar 2014, 09:59 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » That is how I have been thinking about this as well, MkZSM. When matching demand vs supply, when we get to injection season - Demand is greater than supply.

     

    Further, those in the storage business will be looking for good pricing on the replenishment. If you can't make a profit off stockpiling supply - why buy inventory, right?

     

    So, if inventory is low, that is not an issue until the winter season where more draw is needed. I will certainly be looking in the fall for whether UGAZ will be the right play then.

     

    For now, the only factor will be, at what pricing levels will storage providers drive significant injections and what will demand be when you factor in residential, commercial and powerburn along with injection demand vs supply. With ample supply, I think the storage buy side will ensure we have low NG prices as they can regulate how much demand they create and how much impact that has on prices.
    19 Mar 2014, 11:42 PM Reply Like
  • MagicQuote2014
    , contributor
    Comments (76) | Send Message
     
    MQ here with Technical comment:
    The chart set up here is an interesting one.

     

    $DGAZ at 3.55, right in the middle of a current trading band.
    My bottom stop is 3.38 if there is a reverse. First goal is 3.67, then 3.85, and if it exceeds that, we are off to the races. My tight stop is 3.49//
    I have learned a lot from trading very quickly in and out several times with small net profits each time with DGAZ. The reason I am following is that I favor the long thesis with a min 3 to 1 risk/reward ratio longer term for DGAZ. ( I am grateful for Growfast's clarifying the fundamentals here,and therefore put in my two cents as a contribution to others that are appreciative of his good work. I am a technician, so excellent, intelligent independent research that identifies opportunities will always be followed up in my pursuit of profitable trades.)
    1. Statistically there is a compression taking place between bulls and bears off the bottom since the end of Feb It is building a spring coil which when resolved should add energy to the breakout.( At this point, it is not resolved yet.
    It's probably due to the extended political jawboning, and the Ukraine situation muddying the waters regards energy markets, as well as the polar inversion back East extending winter in the US.) I have been buying small dips and selling small rises making 10 cents or so as the market goes back and forth.
    2. This is no longer "glamorous stuff", like trading the Gold derivatives, or Shooting for the stars with some shorts on extended biotechs, but it is proving out to be profitable as this wave grinds to a resolution. I expect a capitulation with $NatGas EOD spot, and therefore UGAZ, with a rapid rise in DGAZ , but in the meantime it is hard work for everyone in the trenches (day traders).( There are suppler- retailers in the NatGas market that have different positions, and various unpredictable supple demand factors and squeezes that make this difficult according to what I have read from those who publish fundamental reports on this market. Growfast has covered these factors perfectly and navigated through this.
    MQ.
    Good luck Traders.
    20 Mar 2014, 02:32 AM Reply Like
  • fwsk
    , contributor
    Comments (3) | Send Message
     
    no k-1s for dgaz &ugaz, just 1099s.
    20 Mar 2014, 02:58 PM Reply Like
  • fwsk
    , contributor
    Comments (3) | Send Message
     
    great articles as always.
    Do ugaz and dgaz have k-1 tax report forms?
    20 Mar 2014, 02:58 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » DGAZ is taxed via Form 1099; not Form K-1. See information here: http://bit.ly/1j8AVzl
    20 Mar 2014, 03:13 PM Reply Like
  • Tradestrong
    , contributor
    Comments (22) | Send Message
     
    UNG GAS SPOT shows a very bearish environment. bearflag. and all indicators showing we will have a hard drop. but so far, gas has been held so well. any reason behind it? dgaz shouldve been pop to touch 4.5 area. but something has stopped this pop. very strange.
    22 Mar 2014, 04:48 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » The two factors most commonly held as effecting the prices recently seem to be:
    - Winter weather driving draw downs on storage
    - Low storage levels (well below 5-year and 10-year averages)

     

    In the upcoming report this next Thursday, we will report on the draw for what may turn out to be the last cold weather that proliferated across much of the US. We may see a draw up to a little higher than this last period and the bulls have been working to drive fear based on the potential for storage to drop below 1TCF but I see nothing magical about this number.

     

    My thought is we may get the pop this next week, or bulls may hold prices up just a little longer. But, between now and the first storage report that shows net injections versus withdrawals, I've got to believe the price will shift downwards quickly and pop DGAZ nicely.
    22 Mar 2014, 06:41 PM Reply Like
  • Tradestrong
    , contributor
    Comments (22) | Send Message
     
    Agreed. Growfast. Bulls did try their best to hold up the price. if we could get a nice pop on dgaz to 4.5 next week. i am looking for ugaz to have another bounce around 18$ . which would lead dgaz to go down again to retest 3.9 support. very nice rinse repeat. ;) thank you for you analysis tho. wondering whats your take on GDXJ and GDX next week? any comments?
    22 Mar 2014, 10:21 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » I think you have the right idea on the way to trade DGAZ and hoping this will be a good week for us.

     

    On GDX and GDXJ, the charts on both and on Gold are still in bear trend cycle when I had been expecting a good correction for a few weeks. We have not corrected yet to where I thought we would go (1280-1300) - which could still be in the cards, but we've been holding in the Gold 1334+ area so could be forming a base here to turn back to a bullish cycle. From my current view, it could go either way so, I have a strangle on GDXJ (calls and puts) so as long as we get a good move 1 way or the other, or get a good move one way and then the other, my position will be profitable.

     

    I added a very small position in JNUG on Friday, which positions me with a minor bullish bias. If we go to 1280-1300 Gold, I'll hang on to these and add more most likely.
    23 Mar 2014, 10:46 AM Reply Like
  • MagicQuote2014
    , contributor
    Comments (76) | Send Message
     
    HI Grow:
    sent you a private email regards $DGAZ
    Good luck this week Traders
    MQ
    23 Mar 2014, 03:51 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » This week has been a bit more interesting for Natural Gas and DGAZ. DGAZ has been working in a continuation wedge pattern and threatened to break out when it traded right under resistance at 4.03, before pulling back. I am still holding core DGAZ, but did sell the remainder of the expiring BOIL puts last Friday for a nice profit.

     

    Today, NG rallied to a little over 4.24 and has pulled back from there a bit. This took DGAZ to a low of 3.55 which I think created a buy opportunity. I picked up some more BOIL puts to replace those I sold last Friday at this price level.

     

    The NG rally today was likely because the bulls are reading about the storm in the NE and partially because of the Congressional hearings on LNG exports to try to help Ukraine. Here is a good article on the topic at this link:
    http://reut.rs/1gyG4yH

     

    The key to this is, even if Congress grants license and permission, it will be several years before any LNG would be exported. So, even if bulls try to rally this news, it does not create demand that would affect spring/summer pricing of US Natural Gas.

     

    For a long-term US demand picture such a license grant from Congress, it certainly will have an affect and supply plans will need to be increased to meet the demand. Companies would need to raise capital to construct the infrastructure and plants required, contract with producers for the supply, contract with purchasers before justifying the project, build the projects - and this is expected to take several years.
    25 Mar 2014, 06:55 PM Reply Like
  • MkZSM
    , contributor
    Comments (268) | Send Message
     
    You have been spot on March 22, and accurate as we move forward. You are def have the right thought of mind.
    26 Mar 2014, 10:13 AM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » DGAZ is trading back within the ranges of the Continuation Wedge pattern today and holding with a little strength over the close yesterday. Natural Gas so far is holding up fairly well. Tomorrow's storage report may again bring back the bears if the report is again bearish. We are expected to report a slightly larger draw than was reported last Thursday.

     

    Storage Poll for tomorrow's report:
    View Poll Results: Storage for EIA report date 3/27/14
    Above -44 Bcf 1 4.55%
    -45 to -49 Bcf 5 22.73%
    -50 to -54 Bcf 4 18.18%
    -55 to -59 Bcf 6 27.27%
    Below -60 Bcf 6 27.27%

     

    Estimate I'm tracking too is: -55bcf
    At present, estimates for next 3 weeks reports following are:
    -64, +16 and +21.

     

    If the reports over the course of the next 2 weeks with these small draws don't knock NG down below support at 4.25 and rally DGAZ, then I would expect the reports showing net injections to kick us off in that direction.

     

    Things should get interesting. I'm holding core DGAZ shares and some BOIL puts.
    26 Mar 2014, 02:06 PM Reply Like
  • Tradestrong
    , contributor
    Comments (22) | Send Message
     
    Thank you so much Growfast. appreciate your knowledge and analysis. ;)
    26 Mar 2014, 02:50 PM Reply Like
  • brendang0027
    , contributor
    Comments (19) | Send Message
     
    Bought more at 3.31 Any reason $DGAZ bottoming ?(hopefully bottom)
    27 Mar 2014, 02:19 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » The bulls got a good rally going out of this. Low inventory and another draw seem to be the theme driving this. Passed through first resistance at 4.5. 4.6 is next level with strong resistance that I think should hold if the bulls run it there.

     

    The report today was in line with expectations, so my anticipation is soon we will see another good pullback. At present, I view this as buying opportunity and look forward to the 1st report that we have net injections.

     

    An article is linked in below with the bullish slant being that -57bcf was more draw than an estimate of -54bcf. Hardly justification for a rally like this - and, suggests this will likely be short-lived with continuing warming trend.

     

    http://bit.ly/1iExRYa
    27 Mar 2014, 03:00 PM Reply Like
  • MagicQuote2014
    , contributor
    Comments (76) | Send Message
     
    Hi Grow:
    MQ here. unfortunately DGAZ technically is broken, intermediate and long term support levels at 3.39 today with the new low at 3.26 today.,
    Next level is 3.16 for support and now overhead resistance will make the climb slow back up to 4.02.. Looks like we are back to channel trending awhile. Unless outside news drives it and increases the emotion of the crowd attracting new outside buyers, I see this as neutral money for awhile.
    the set up will need to spend some time coiling and grinding to develop any new upside energy.
    My trading guidance is stand aside if not in market.
    If currently long to get out on any upside surge and then wait and lick your wounds from recent loses in last 3 days.
    MQ
    27 Mar 2014, 03:17 PM Reply Like
  • MkZSM
    , contributor
    Comments (268) | Send Message
     
    Dgaz looks to repeat last year, after April 20th it goes higher
    27 Mar 2014, 04:31 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » So you think Natural Gas is going back to $6 in the next few weeks never to drop back down? Or, will the head and shoulders pattern forming on the NG chart deliver exactly what we have been looking for?

     

    Also, what makes you think a warm weather report in the next day or 2 won't reverse this run?

     

    Here was the article from today. Notice the view this will be short-lived. News seems to be driven to move the price upwards and downwards each week and it is this volatility we want to take advantage of.

     

    My only regret about today is that I didn't take the opportunity to reposition a big chunk from the 4.02 high and replace with cost from today. But, I think some other folks made this move.
    27 Mar 2014, 05:38 PM Reply Like
  • MkZSM
    , contributor
    Comments (268) | Send Message
     
    What I mean: Definitely think dgaz will go higher, I feel Like dgaz chart will look like last year with the only difference is in price. Once injections begin NG going to $4, any lower might be a buy.
    28 Mar 2014, 10:10 AM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » So you are thinking that NG is a buy below $4 for this spring/summer season? And, if this is what you are thinking - what time frame are you thinking for the trade?

     

    Is there any particular reason you think that strong supply won't get us back to $3.5 NG before this summer?
    28 Mar 2014, 10:14 AM Reply Like
  • MkZSM
    , contributor
    Comments (268) | Send Message
     
    I say below $4 is a buy for now because I can't predict if we will have have a hot summer. If summer repeats last year then by august we should see if injections helped us catch up then sending NG back to $3.50. Just giving my 2 cents.
    29 Mar 2014, 04:31 PM Reply Like
  • MagicQuote2014
    , contributor
    Comments (76) | Send Message
     
    10-4 , I value your opinion. I am still long.
    MQ
    28 Mar 2014, 04:29 AM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » We certainly still have some work to do this year. There is price history showing that even when storage was very low, when demand dropped, prices dropped significantly. However, this year storage is lower than it has been in some time and replenishing that will create some additional demand to be added to commercial/residential and power burn. We'll certainly have to play this for the volatility it is likely to bring us with arguments that can be made on both bull and bear side of this.
    29 Mar 2014, 05:44 PM Reply Like
  • antioxidant
    , contributor
    Comments (13) | Send Message
     
    Much appreciate the running discussions between Grow, MQ, R. Edwards, and others. You are all providing a great free service to the DGAZ community and I certainly have become a more educated and confident trader/investor. As we approach the start of the injection season, an acknowledgement is due for your instablogs, commentaries, and critiques during this very challenging winter:)
    30 Mar 2014, 02:19 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » Yesterday was a good day for DGAZ, getting us back in After Hours to almost $4, with NG falling to below 4.25 for the first time since the spikes of this winter season.

     

    Poll for tomorrows report is pasted in below:
    View Poll Results: Storage for EIA report date 4/3/14
    Above -74 Bcf 5 21.74%
    -75 to -79 Bcf 8 34.78%
    -80 to -84 Bcf 4 17.39%
    -85 to -89 Bcf 3 13.04%
    Below -90 Bcf 3 13.04%

     

    Estimate is for a draw of: -79bcf.

     

    Bulls may work to rally this really hard which would be a good buy opportunity. Estimates for the following 3 weeks are: 0, 17, 52. So, this could be the last withdrawal report. If so, I think we will see a good pop over $4 in DGAZ soon.
    2 Apr 2014, 10:58 AM Reply Like
  • Tradestrong
    , contributor
    Comments (22) | Send Message
     
    Really hate to see the sideways action. up and down up and down. ;( playing gold now.
    2 Apr 2014, 01:16 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » Trade,

     

    With NG at present, you have to make volatility your friend and it is rewarding. The up and down cycles are fairly regular and predictable. Although, I predict that soon we're going to break the ranges of the cycle into new territory for DGAZ.

     

    Gold goes up and down too - but in slower cycles. I'm back on the bull side of the miners for the next up cycle there as well.
    2 Apr 2014, 01:28 PM Reply Like
  • Tradestrong
    , contributor
    Comments (22) | Send Message
     
    Grow,
    if DGAZ go to 3.30 i would buy again. what do you think? i dont see any catalyst to support gold go back to 1350. Fridays job number would be a dump again. i think we are just having a technical bounce now. if it really go back up and test the recent high. i would be so so so so happy. i am holding tons of JNUG now. lol had a nice run today. but last minute was an ugly dump. hated.
    2 Apr 2014, 04:25 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » The pricing of miners often moves in a relationship that doesn't necessarily tightly correspond to the price of Gold. Market sentiment, perhaps based on near-term expectations for what Gold may do, may move up or down.

     

    Today, while Gold was at 1289, the price of JNUG ranged anywhere from 21 and some change to well over 22. With a sell off at COB today, glad I didn't sell into that action. I would rather sell when the market is pushing upwards and peaking.

     

    Lets see what tomorrow brings.
    2 Apr 2014, 05:10 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » This week NG has held up strongly with a very narrow price range between roughly 4.46 and 4.59. We may be on the verge of a good run down in NG, which should give a nice, needed rise to DGAZ.

     

    Here is the updated Storage Poll for this weeks report for tomorrow morning:
    View Poll Results: Storage for EIA report date 4/10/14
    Below 9 Bcf 10 33.33%
    10 to 14 Bcf 9 30.00%
    15 to 19 Bcf 6 20.00%
    20 to 24 Bcf 4 13.33%
    Above 25 Bcf 1 3.33%

     

    Current estimate is for net injection: +13bcf.
    Current estimates for the following 3 weeks are: 35, 52, 69.

     

    This should reflect to NG traders that demand is rapidly falling. Bulls will try to make issue of the low storage and injection rates not replenishing storage fast enough - but to me, that is an issue for prices next winter, not in the near-term. As demand falls, I expect pricing of NG to fall and DGAZ to rally. As prices come down, storage firms will be more interested in replenishing their supply.

     

    Not sure whether we will start to see a sell off in NG prior to the report, or following the report, but I would expect us to see a good fall between now and the end of next week.
    9 Apr 2014, 03:14 PM Reply Like
  • MkZSM
    , contributor
    Comments (268) | Send Message
     
    What you feel should occur with dgaz in the next week? Seems like bear trade is not the right one currently.
    10 Apr 2014, 01:35 PM Reply Like
  • Growfast
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » Certainly not the tone of the market today. I guess the big boys want the price to be up.

     

    +4 bcf injection vs expected +13 bcf

     

    Still, demand falling below supply and will stop using storage inventory. Storage providers may be hesitant to purchase gas to refill storage until the prices come down. I'm still expecting to see a good pullback in NG within a week.

     

    We'll see. The bulls are relentless and have been holding up the prices firmly.
    10 Apr 2014, 02:26 PM Reply Like
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