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Natural Gas - A Low-Risk Short-Term Trade. Possible Bottoming Activity

Tuesday  17 November 2009

 Always know the trend of the time frame you are trading, and be aware
of the next higher time frame, as well.  With that key guide as a reference,
the Natural Gas market may be offering a low-risk, short term trade, and
here is our reasoning.

The Daily chart has been down for 18 straight days, a short-seller's
nightmare and an excellent reminder why one never goes against the
trend, especially bottom and top picking.  Price has broken the upper
range of the channel that has guided this market down.  Volume, not
shown, was very strong today, the highest volume in five weeks.  What is
interesting is how the sharp increase in volume has not pushed price any
lower than where it is. 

That observation prompted a closer look at Natural Gas.  The daily trend
is down, and the trend has been weakened by the breaking of resistance.

 

 NG D 17 Nov 09

A look at the intra day chart, 60 min, shows how price had been declining
throughout the day.  When new lows occurred, second bar from the end,
volume picked up...we think buyers coming in to support the market. 

Why interpret the activity that way?

From the 4.287 low on the 13th, to today's 4.734 high, a half-way
retracement line was drawn across from the wide range rally bar on the
opening of trade on the 16th.  In itself, a wide range bar to the upside,
from a low level, is an indication of buying and potential support.  Following
the line horizontally, the low of the day stopped right at support.  The line
was there before the low occurred.  From support, price proceeded to rally
back above 4.900 to 4.925.  It looked like potential support at a 50% retest
was holding, and also ABOVE the trend line drawn off the lows.  That price
did not go all the way back to that trend line is viewed as a minor sign of
strength. 

We are talking about intra day charts, so everything is minor and
subordinate the the higher time frame daily trend, still down.  Long positions
were entered on that rally.  Price then sold off, again, [the power of the
higher time frame trend], and stopped for a second time, making a lower low
by a mere 2 tics, and then rallying back to 4.926, showing an ability to
bounce at what would be considered a negative area from a daily and
weekly chart perspective.

Additionally, volume increased on the new lows and closed mid-range.  The 
mid-range close says that buyers were present, ["coincidently," at a support
point], and price held going into the final minutes of trade.

Stops are at 4.875, about a $500 risk  Potential?  Back to 5.050 to as high
as 5.200, a 2 - 4:1 risk/reward situation.  The odds are favorable in the
defined time frame.  Now we wait and see.

NG 60m 17 Nov 09