It’s Perfectly Natural (UNG)
We’re starting to like the look of the commodities. They have a renewed feeling of strength, and the technical foundations that underpin many of the more popularly traded materials are also shaping up strongly.
Perhaps most importantly, though, it’s the precious metals, whose movements have historically led the broader commodity pack, and which now look as resilient as they ever have, that offer the best hope for this sorry-ass asset class that’s been in decline for the last half decade.
Below are the daily charts for the SPDR Gold Trust ETF (NYSE:GLD) and the iShares Silver Trust ETF (NYSE:SLV), reasonable proxies for their respective metals.
The chart for gold is especially strong, with price just pennies from breaking above all its moving averages (circled, in red). A series of higher highs and higher lows also bodes well for the metal (blue circles). And RSI’s recent break above its midway waterline also speaks to a more constructive technical setup (green box). Once MACD confirms by breaking above its waterline, we’ll have a straight-on BUY signal for those interested in getting long.
And that could be soon.
By contrast, silver isn’t as robust, though the most recent reversal higher shows that buyers are serious about the metal’s future.
A gain of better than six and a half percent in just two weeks speaks to that fact (in red).
Take a look –
We see a severely oversold read at SLV’s latest low at 15.25 (in green), a phenomenon that almost always marks a reversal in the intermediate trend.
Moreover, it’s also a happy sight that price has bounced back above her long term moving average (in yellow).
We’ll feel a great deal more confident once the dirty metal rises above $16.90, putting her above all her moving averages and back in play for a test of her 52 week high.
Until then, we’re patient.
Overall Strength in Commodities
The broader commodity picture, represented by the PowerShares Deutsche Bank Commodity Index Tracking ETF (NYSE:DBC), is also shaping up well. Consider the following six month chart of that stock.
Here, the gains were even more pronounced. Off the early May lows, the broad commodity spectrum surged higher by seven percent, and requires just another dime in gains to pull above all her salient moving averages (red box).
RSI surfaced several days ago and MACD appears headed in that direction (in green). If the current gains hold, the latter should arrive there within a week, setting the stage for a powerful rally in the PMs.
Neither Here Nor There…
But it’s not to the precious metals, nor to the broad commodity sector ETFs that we’re looking for today’s trade. Rather, we’ve a hunch that the next big gainer on the ‘stuff’ front will be none other than natural gas.
What in Heaven’s Name…!?
Indeed, friends, as hard as it may be to believe, this beaten down segment for which everyone lost hope when she swan-dived back in 2008/09, now looks primed to bump strongly higher, if the technical indications prove true.
Have a gander –
The daily chart for gas is no investment wonder, but it does show promise in the 30 to 90 day time frame if – and that’s a patently speculative ‘if’ – we get even marginal pressure higher for the gassy one.
- The key indicator here is the three-wave down pattern that has now run its course, offering substantial upside for the stock.
- Also, both RSI and MACD are healthy, straddling their respective waterlines in anticipation of the next break.
- And finally, all UNGs moving averages are angling toward their first unwind higher in over a decade!
So, will it happen?
Let’s take a brief look at some stats.
First, short interest.
The number of shorts on UNG has grown extraordinarily over the last couple of months, from 19,033,004 shares on the 15th of March to 46,673,832 shares on the 13th of April. That’s an increase of 145% in less than thirty days, and bodes well, in our experience, for a potential push higher. If UNG can hold its own, the shorts will be forced to unwind, and we could see a sizeable spurt that gaps the shares above the long term moving average at $7.95. (UNG is currently trading at $7.44.)
Next, consider a bit of anecdotal evidence – last Friday there was a zealous move into UNG CALL options. Whereas normal daily CALL purchases number in the 3300 range, Friday’s CALL totals registered an alarmingly bullish 13,476!
Somebody somewhere either knows something or has a similar suspicion to us, and we plan to get to the bottom of it!
Finally, have a look at what the speculators have been up to of late in the gas pits.
This is a chart of the net speculative position in gas over the last twelve years.
And as you can see, history is now being made.
For the first time since 2006, futures have surged to a net long position –
Perhaps this was an inevitability, given the steady lifting of the shorts over the last two years, but it’s still a feather in the NatGas cap, and we feel strongly the trend will only grow in the months to come.
Finally, look at the weekly chart of UNG for the last two years, particularly at the positive divergence from the RSI and MACD indicators (in green).
Buying momentum has been growing since the winter of 2015, when weekly RSI dragged itself along a rocky oversold shoal and started turning higher (red circle).
Now both RSI and MACD are flat-lining while volume grows – a sure sign of accumulation – and we all await the break higher.
A move above $10 in the near term would not surprise.
But we’re not going to wait until UNG is already flying to take a position. We admit it’s somewhat early, but we feel the potential is grand, and not worthwhile passing up.
To that end, we’re taking the following action –- Content protected for Normandy Executive Lounge, Option Trader Elite, Executive Lounge members only]
Many happy returns,