A Big Rally Could Await Natty

The United States Natural Gas Fund (UNG) is off about 1% in the past week, but plunging temperatures across the U.S. could be a sign that those that can handle the volatility ought to be patient with UNG.

Additionally, natural gas futures, which have outpaced the S&P 500, Dow Jones Industrial and Japan’s Nikkei 225 over the past 90 days, are at a critical technical juncture.

Natural gas created a bullish inverse head and shoulders pattern back in 2000 when few were bullish on the commodity, according to Chris Kimble of Kimble Charting Solutions. “In the following 9 months, natural gas rallied 89%, until it hit a key falling resistance line. After hitting this resistance line in early 2013, NG fell, hit support and has been one of the best assets to own over the past 90 days.”

“Now what? Well NG is back at a resistance zone that has held it in check for the past few years. Which is more powerful…record cold temps or the resistance zone? A much bigger H&S pattern in my opinion is at play, with this resistance zone, looking like a neckline,” added Kimble.

Investors have been pouring into UNG in recent sessions even though the fund has struggled to break resistance $ 22. That “has not stopped the fund from pulling in new assets on heavier trading volume in the ETF, with UNG reeling in about $160 million in the past several sessions,” said Paul Weisbruch of Street One Financial. [ETF Chart of the Day: Gas Up]

UNG “now has $958 million in assets under management and averages a whopping 5 million shares traded daily, despite the rampant criticism about how the fund actually delivers returns via its methodology in investing in Natural Gas futures. In fact, UNG remains the largest fund in the Natural Gas commodity space by a mile,” according to Weisbruch.

The equity-based First Trust ISE-Revere Natural Gas Index Fund (FCG) is off half a percent over the past three months.

U.S. Natural Gas Fund

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.