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UNG>Natural Gas Looks to Be on Shaky Shale

Posted on 03/03/10 at 11:24am by Michael J. Zerinskas

The United States Natural Gas Fund (NYSE: UNG) is not looking so pretty these days. After rocketing higher and forming a double bottom at the beginning of this December, the ETF has simply fallen out of bed in recent weeks and looks to be broken.

The UNG is currently trading below the 50 and 200-day moving averages, never having significantly formed a rally above to 50-day during its recent climb. It is pushing out the lower Bollinger Band to the downside, indicating fresh and heavy sell selling accompanied by increased volatility. And the ETF’s fundamentals are faltering as well with a warmer than normal rest of the winter predicted.

The United States Natural Gas Fund has also reached a point on the chart where it is at its 52-week low, as well as what looks to be a “triple-bottom” point. One of the first rules I was taught about trading is that 9 out of 10 times there is no triple bottom, so how can I spin the UNG into a bullish thesis either—I can’t.

While there is potential for a one to two day rally from overly sold conditions, I would be buying put in the ETF. Given the lower than normal volatility in the ETF, I wouldn’t even use a put spread and hope on the harshest decline you can get. I am buying the April $8 puts to open for $0.21 and may consider the June $8/7 put spread for $0.27.