Seeking Alpha

Trade Alert: Natural Gas Downside

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Includes: BOIL, DGAZ, KOLD, UGAZ, UNG, UNL
by: Brian Fletcher
Brian Fletcher
Gold & precious metals, hedge fund manager, research analyst, long/short equity
Summary

Natural Gas is setting up for an immediate move lower.

Upon conclusion of the next move down in Natural Gas, the platter is then set up for a very large move higher.

Natural gas is a pleasure to chart. It adheres to Fib levels, and provides very tradeable moves for those willing to follow along.

Natural gas is a pleasure to trade. From a traders perspective who uses Elliott Wave and Fibonacci extensions and retracements, natural gas is a virtual dream instrument. There are a number of reasons I say this. Firstly, NG adheres nicely to Elliot Wave patterns. Secondly, it hits and holds Fib levels. Thirdly, many times it provides very deep retrace levels, which from a trader's perspective is ideal, as it allows one to enter a trade with larger upside and a very small amount of risk relative to the upside, by effectively stopping out if it breaks above or below a prior high or low. Fourth, it moves in high relative percentages.

In other words, the amplitude of swings in price are extreme relative to its underlying value, which creates incredible rewards relative to risk trade opportunities. Lastly, there is plenty of ways to go both long and short natural gas. One can trade the NG futures contract, or various ETFs like the United States Natural Gas Fund, LP (UNG), the Velocity Shares 3x Long (NYSEARCA:UGAZ), or the Velocity Shares 3x Short (DGAZ). In addition, there are plenty of natural gas-related stocks as well. We trade natural gas on a daily and weekly basis, and in our experience, it has been a dream instrument for racking up ongoing profits.

Presently, there is a nice downside short-term setup for those who trade NG to focus. However, before getting into the specifics of the immediate trade, no good analysis is done without first taking a bird's-eye view. See Natural Gas Monthly Chart below.

In looking at the monthly chart for natural gas, note that we are expecting a final (y) wave to complete to the downside into the 1.839-1.620 region, to then be followed by an enormous move to 5.60 next. This is a diagonal count, so the move up from the next low will take the form of an abc, or 3-wave move, similar to what the monthly chart shows occurred in wave (1) in blue.

Natural Gas Monthly Chart

NG Monthly Now turn your attention to the Natural Gas Daily Chart below. Note that the X-wave has completed, and NG has started down in the (a) wave of Y of blue (2). This is the immediate trade opportunity. While it may seem small, note that the move down in the (a) wave is a 17% move in and of itself.

Natural Gas Daily Chart

NG DailyNow, let's drill down one more layer and look at the Natural Gas 60-Minute Chart below. In this chart, it shows the X wave has completed, and that NG is completing an Elliott Wave i ii 1 2, or will result in a slightly higher retrace to complete a i ii. This projects a move from anywhere between 2.67-2.89, down to the 1.84 region, or approximately 30%.

Natural Gas 60-Minute Chart

NG 60-Minute ChartWe will be trading this next move down in anticipation of accumulating some profits to enable us to then toggle to the long side for the longer term and massive move up. For those who are looking for buy and hold opportunities, this next trade may not be your cup of tea. However, it is highly advisable to put natural gas on your radar, and add to your watch list to be sure to not miss the much longer-term significant move up off the next established low.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Stalking a short in NG now per the 60-minute chart.