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.
A look at the intra day chart, 60 min, shows how price had been decling 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 potentuial 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.
