June 27, 2013

Logical Market Update: Natural Gas Fails to Ignite a Rally – Price Volatility = Opportunity

Natural Gas Fails to Ignite Rally – Thursday’s Lows Just Above Important Near-Term Support – Increased Price Volatility = Opportunity


Natural Gas dropped over 4% quickly after the latest EIA report showed U.S. stockpiles increasing beyond forecasts.  The August future was off over 18 cents touching 3.55 before recovering to close at 3.59.  The move itself seemed to follow the similar pattern seen in other commodity markets where speculative long positions are liquidated.  


The pattern in progress remains in my estimation to be a corrective move of the advance from the April 2012 low (1.90) to the April 2013 high (4.45).  Here again, as in so many other markets prices are within a “zone” that could complete the correction and set the stage for another leg up.  A longer-term signal has not been given yet, but momentum oscillators remain oversold on the weekly chart. 


A break below $3.47 with follow through raises the potential for a test of $3.17 and failure of this support gives way for downward momentum to carry toward $2.87. 


Fundamentally, demand for natural gas throughout the summer months is now not expected to have a significant impact on supply levels.  This of course is based on improved weather forecasting models, which I believe are greatly improved but a heat wave hitting the East Coast or sitting over the mid-west could change demand. 


Also, the longer-term picture for U.S. supply and demand received a large positive this week after the President announced he would approve the construction of the Keystone XL pipeline which will run from Canada to Mexico as long as it did not excessively contribute to carbon pollution.  The economic benefit for the U.S. is large if the oil carried by the pipeline were to be refined by U.S. companies. 


It should not be misunderstood that higher oil and gas production will benefit and boost the economy and yes, I do agree that at this juncture the economy is winning the battle of the effects of increased production on the environment.   According to the Department of Energy there are 16 outstanding LNG export applications Cheniere Energy was awarded the first license and construction of their export facilities are underway and be ready to begin exporting in the 2nd half of 2015. 


Longer-term positions within this sector (Liquid Natural Gas Production & Exporting) are expanding and worth looking into. Two companies already in play are Cheniere Energy (LNG) and Dominion Resources (D).


Natural Gas (August future – Weekly)

Day trading opportunities in Natural Gas futures have increased and are likely to continue as the correction nears completion and the next advance takes over.  While all three DTS trading platforms should produce profitable signals in NG, with intraday price volatility kicking up several notches the Hawk Micro Scalper is suggested for day trading.  Always check to insure that trading NG futures fits your trade objectives and account – the tick size is larger as are the margin requirements.


Diversified Trading System

I continue to recommend as the best trading platform available to a broader range of traders from novice to expert.  The Diversified Trading System offers a cost effective product that allows a trader to enter into the “chaos” and trade more effectively.  


Trade Manager from Indicator Warehouse automatically calculates the correct amount of contracts or shares based on your account size or market volatility.  Automated stop-loss management and position sizing eliminates most of the problems most individual traders have.  Day trading and position trading both require (actually demand) good risk management.  Trade Manager does the job across the board and is an essential trading tool that ensures that you take the maximum profit from all your trades. 


A newer member of the money management tools available from Indicator Warehouse is the Profit Finder – System Back Tester When implemented it allows the user to:

  • Immediately know the impact of parameter changes. 
  • Automatically reads all of your DTS entries and exits
  • Calculates the profit/loss of each trade
  • Performs a wide number of essential intelligence boosting calculations instantly
  • Provides solid details about the effectiveness of your trading strategy/ methodology/ indicators


The last two points above are valuable tools to use.  It will show you where some “tweaking” is needed to improve results through the back testing feature. 


My point on money rotation and sector rotation is similar to that on parabolic moves that they happen with frequency within many time frames.  As traders these types of moves can be a bonus for day trading or position trading so again don’t get caught up in the “what’s the catch.”    Realizing a rotation is occurring within a stock you trade or a sector is a great source of stocks to plug into the Diversified Trading System.  Allowing DTS to cleanly and beautifully capture the moves though any or all three DTS trading platforms.  Our goal remains to assist traders to make greater profits during all types of markets.  Sector and money rotation is another tool.


The Diversified Trading System used together with Trade Manager should continue to produce numerous trading signals in the DJIA, YM (mini), S&P 500, ES (mini), RUT, TF (Russell 2000 mini), AAPL, AMZN, GOOG, NFLX, and LNKD, GS, and Tesla Motors (TSLA).    


Here is an updated list of the markets where I have found that DTS (all three birds) are producing numerous signals:

  • DJIA future (e-mini available) – Highly recommended
  • S&P-500 future (e-mini available) – highly recommended
  • Russell 2000 future (e-mini available) – highly recommended
  • NASDAQ 100 future (e-mini available) very highly recommended
  • US$/Euro futures (e-mini available) – very highly recommended
  • GS (Goldman Sachs) – good two way volume –
  • AAPL (Apple Computer) – highly recommended
  • GOOG (Google) –  highly recommended
  • LNKD (LinkedIn) – solid intraday range
  • NFLX (Netflix) – solid intraday range
  • TSLA (Tesla Motors) – highly recommended  
  • 30-yr Treasury Bond future – highly recommended
  • 10-yr Treasury Note future
  • TLT (Treasury Bond Long ETF)
  • TBT (Treasury Bond Short ETF)
  • Gold (futures and ETF – GLD) very active – not suitable for all traders
  • Silver (futures and ETF – SLV) – very active – not suitable for all traders
  • Natural Gas (futures) active – not suitable for all traders