Let’s first take a look at the weekly chart of the US Natural Gas Fund EFT (UNG). Here we see that the angle of decent over more than two and a half years (from July 2008 high) has been rising, reflecting an overall slowdown in downward momentum. 

Volume has noticeably improved over the past couple weeks approaching a level not seen since January 2010. Also, the Stochastics indicator measuring momentum has recently crossed up, while last week UNG closed above its 21 period weekly exponential moving average (ema). 

By taking a closer look at recent price action on the daily chart we see further bullish behavior. First, UNG broke out of a small bullish Head & Shoulders bottom formation two weeks ago and rallied approximately 10% to Friday’s close of $11.80. 

It is now back above its 50ema, and the 12ema has crossed up through the 21ema and just crossed the 50ema on Friday. At some point, probably very soon, UNG will pullback to test support of the long term downtrend line and 50ema on the daily chart, providing another area to look for an entry. 

You can see that the high of last week hit resistance of the shorter downtrend line begun from the January 2010 high, and resistance of the uptrend line identifying support of the retracement off the October 2010 low. This would be a logical area for the current short term rally to run out of steam. Volume has been declining during the rise and the Stochastics momentum indicator is in overbought territory and just starting to cross down. 

However, so far price is still indicating that UNG is going higher as it closed at the high of the day on Friday. A close above the shorter downtrend line would be an additional sign of strength, which could again appear once a pullback is completed. 

UNG has started to exhibit bullish behavior in the past creating hopes that it had reached a bottom and then failed. The same could also happen now. It’s still pretty early to say whether the recent bullish behavior will be sustained, and a more complex bottom may yet develop. But, given the analysis highlighted above, it may now have a fighting chance and deserves to be watched closely. (www.etf-portfolios.com)