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 stong 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 proceded 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 ni the defined
time frame. Now we wait and see.
