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UNG: Prepare For The Rally In Natural Gas

QuandaryFX profile picture


  • The technical picture is starting to show bullish momentum in UNG.
  • Economic demand for natural gas is recovering while production is declining – a classic recipe for higher prices.
  • UNG is exposed to negative roll yield so investors could consider a tactical approach to entry and exit.

As can be seen in the following chart, the United States Natural Gas Fund (NYSEARCA:UNG) has been in for a turbulent year with shares continuing to shred value.

While these losses have been substantial, I believe that we are at an inflection point in the fundamental data. Specifically, I believe that both fundamental and technical data suggest that now is a good time to buy natural gas and that over the next few quarters will we see gas prices rally.

Natural Gas Markets

Let's start this piece off with a brief look at the technical picture. As you can see in the prior chart, natural gas has been in a downtrend for several months on the back of fairly bullish fundamentals. However, I believe that technically speaking, we are poised to see a switch in momentum as seen by the MACD turning over and showing positive momentum.

The MACD is a fairly simple indicator which measures momentum by calculating a few metrics based off of two moving averages. This indicator can be interpreted fairly straightforwardly in that when the bar chart is green, it means that momentum (as measure by moving averages) is positive and the converse is true when the bar chart is red.

As you can see in the chart above, we have just ended a period of bearish momentum and we have flipped into moderate (but growing) bullish momentum. While the overall trend has been down for some time, this at minimum suggests that the trend will pause or likely reverse. I believe that the odds favor a reversal into a bullish trend in that over the past month we have seen the market fail to sustain new lows. This tells me that the sustained heavy selling seen earlier this year is likely done for now and a fresh bullish trend may emerge from

This article was written by

QuandaryFX profile picture
I work within the trading and money management industry. I have been trading and investing for several years. My style is technical execution with a fundamental thesis in place. I rely heavily on statistical analysis of the correlations between fundamental changes and price movements for generating most ideas.

Analyst’s 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.

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