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Natural Gas Ready to Pop?


The next move may be up rather than an extension of the previous down trend.

Natural gas (UNG) has recently caught my attention. While it was in a significant downtrend for the better part of a year, it has recently been consolidating right under the $20 level. A look at the daily chart shows a long move down and then recently a sideways consolidation pattern. While this is typically a continuation pattern, I am beginning to think that the next move may be up rather than an extension of the previous down trend.
  • Over the last two weeks, there been significant support above $18 and significant volume.
  • The $20/$20.50 level has been tested multiple times; the more tests it undertakes, the more likely it is to break.
  • Both the 20-day and 50-day moving averages have turned upwards and UNG is trading above both.

Click to enlarge

If we zoom in a bit and take a look at the hourly chart, we are presented with two scenarios:

1. The rising wedge holds and UNG breaks through the $20 - $20.50 resistance level on high volume and a new long-term up trend is produced.

2. The head and shoulders pattern within the wedge breaks downwards and the down trend resumes.

Click to enlarge

I'm leaning towards option one, but will be waiting for a breakout confirmed with volume in either case.

Editor's Note: Chris Vermeulen offers more content at his sites, and Traders Video Playbook.
No positions in stocks mentioned.

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