The largest natural gas ETF has pulled back the past couple sessions following a strong two-week rally. However, there is a bullish pattern of volume in the weekly chart of U.S. Natural Gas Fund (UNG - News) .
Volume is a leading indicator and often precedes price action.
Notice on the chart below how volume was declining as UNG made its low April 2012, and then increased significantly on the ensuing rally off that low.
Again volume decreased as UNG sold off but the price was unable to make a new low. This is a warning sign or red flag for the bears that the trend may be ending. Volume has since increased significantly as UNG rallied back to the most recent high on the weekly chart. [Natural Gas Rally Pauses]
This is a textbook pattern of “Accumulation” and shows that the shares are now going from “weak hands” to “strong hands.” Demand is gradually overtaking supply. I believe there is very good potential for a reversal in the long term trend once there is confirmation of this pattern.
Confirmation for me would be a breakout and close above the recent high on the weekly chart where I have drawn a horizontal blue trendline on the chart. This will have me interested in buying UNG for the intermediate term, and possibly buying long term call options known as “Leaps” to January, 2014 on UNG for a longer term play.
There may also be excellent “day trading” opportunities in the leveraged ETFs associated with Natural Gas such as ProShares Ultra Natural Gas (BOIL - News) and Direxion Daily Natural Gas Related Bull 3x Shares (GASL - News) for quite some time. Leveraged ETFs are designed for traders rather than long-term investors.
U.S. Natural Gas Fund