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Morpheus Trading Group
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Swing trading stocks and ETFs with a solid approach to technical analysis.

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Morpheus Trading Group
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Morpheus Trading Group - swing trading blog
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Advanced Technical Analysis of ETFs
  • Profit From Short-Term Momentum Of Trend Reversal In US Natural Gas ETF ($UNG) 0 comments
    Sep 24, 2012 11:37 AM | about stocks: UNG

    Unlike our stock trading strategy, which focuses primarily on buying Breakouts and Pullbacks in uptrending markets, we afford ourselves a bit more diversity with our ETF trading strategy because we also seek to take advantage of ETFs reversing from downtrends. This is particularly true with ETFs that have a low correlation to the direction of the broad market, such as currency, commodity, fixed income, and international ETFs. One such ETF we are stalking for potential swing trading buy entry now is U.S. Natural Gas Fund ($UNG). The technical analysis of the trade setup is shown on the daily chart of UNG below:

    (click to enlarge)$UNG breakout above 200-day MA

    For ETF trades that are trend reversal plays, we typically wait at least several months after the ETF has formed a significant low before buying, rather than trying to pick an absolute bottom. Doing so enables the 20, 50, and 200-day moving averages to each be trending higher and above one another. Buying prematurely, before the moving averages confirm a significant trend reversal, often leads to a negative result. However, in the case of this potential swing trade in UNG, a very important factor driving this setup is the close proximity of its 200-day moving average (orange line on the chart).

    As a long-term indicator of trend, the 200-day moving average usually acts as a brick wall. If an ETF or stock is trying to move above that resistance level, very rarely will it break out above the 200-day MA on the first attempt. Rather, it usually requires at least two or three attempts before doing so. However, when the breakout above the 200-day MA eventually occurs, upward momentum of that move is usually quite powerful, at least in the immediate short-term. Also, notice that UNG has already pulled back after two attempts to break out above its 200-day MA, but has been setting important "higher lows" that indicate the bulls are starting to show buying interest. Whenever several "higher lows" have already been formed, the odds of a breakout above the 200-day MA is increased as well.

    Putting it all together, we believe there are good odds that UNG will convincingly break out above its 200-day MA in the coming days. If it does, we anticipate a sharp move higher in the near-term. However, because this ETF is well below its 52-week high, there remains an abundance of overhead supply and price resistance. There are also contango issues with this ETF, in relation to its underlying index. As such, this is NOT a trade setup we want to hold for a very long-time if it triggers our buy entry price. Rather, this ETF trade setup is only intended to be a very quick, momentum-based "pop" above the 200-day MA. Estimated holding time if it triggers for buy entry is only 2 to 5 days. Regular subscribers to our stock and ETF newsletter, The Wagner Daily, were provided with our exact, preset buy trigger, stop, and target prices last night, as well as appropriate share size based on our model trading portfolio.

    Stocks: UNG
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