U.S. Natural Gas Fund (UNG) confirming bullish trend reversal


Stocks spent most of the day mired in indecisive trading yesterday, causing the major indices to close with mixed results on lighter volume. However, a spurt of buying in the final minutes of trading enabled three of the five major averages to finish in positive territory. The Nasdaq Composite and S&P 500 both advanced 0.4%, while the Dow Jones Industrial Average eked out a small gain of 0.1%. The small-cap Russell 2000 closed flat and the S&P MidCap 400 edged 0.1% lower. Overall, Wednesday’s action was uneventful on a technical level.

After the previous day’s wild volume surge, it is not surprising yesterday’s session brought a decline in trade. Volume fell by 29% on the NYSE and 7.2% on the Nasdaq. Advancing volume slightly outpaced declining volume on both indices. The adv/dec volume ratio on the NYSE was positive by a margin of 1.4 to 1. On the Nasdaq, up volume exceeded down volume by a margin of 1.5 to 1. The lackluster internals were typical for a range-bound market.

The United States Natural Gas ETF (UNG) performed quite well yesterday, as it broke out above horizontal price resistance from last month’s highs. With two “higher highs” and “higher lows” now in place on its daily chart, we are seeing more confirmation of the recent bullish trend reversal. Additionally, volume was up in this ETF by more than 50% day over day. The significant spike in volume suggests this ETF may be back on the institutional radar screen, and we remain long from our November 24 entry. As noted on the chart below, next stop appears to be key resistance of its 200-day moving average, presently at the $7.02 level:


Yesterday, we made a judgement call to exit our position in the Market Vectors Coal ETF (KOL), closing the trade with a small gain. While pullbacks from the highs are obviously normal in uptrending ETFs, we did not like the high volume that accompanied the sharp price retracement of the past two days. As such, we simply scratched the trade. Furthermore, we wanted to free up a bit of buying power in our model portfolio, so that our portfolio could assume at least a bit of exposure on the short side of the market.

After closing the KOL position, we sent an Intraday Trade Alert to our members (note trade details in “open positions” below), notifying them of our new long entry into ProShares Ultrashort MSCI Brazil ETF (BZQ). Although we recently stopped out of a buy entry into BZQ, it appears our timing was just a bit early.  Now, after “undercutting” its 20-day EMA and 50-day MA, BZQ formed a vicious reversal candle on December 7th. Yesterday, this ETF followed through on the move by exploding through the 20-day and 50- day MAs, on a huge increase in volume. As BZQ now forms the right shoulder of a bullish “head and shoulders” pattern, this potential trend reversal is more likely to “stick” this time, especially if the broad market cooperates by pulling back.  Further, this entry provides a better risk/reward ratio compared to the last trade in BZQ:


As shown on the chart below, the SPDR S&P China ETF (GXC) is dangerously close to losing support. A break below the November 23rd low of $76.79 provides a potential trigger to sell short GXC. A loss of this key support level could result in a decline that sends GXC down to test of the 200-day MA, presently just under the $73 level:


It is interesting to note many laggard ETFs that have been showing relative weakness to the broad market (such as UNG) are now beginning to show signs of breaking out, while many formerly leading ETFs (such as emerging markets ETFs) appear to be weakening. Such rotation out of leading sectors into market laggards is often an early sign of a broad market reversal. Put another way, when the dogs finally catch up to the pack, the race is often already over. Nevertheless, it is far too early to jump to the conclusion that the overall market is ready to reverse, but this type of rotation activity warrants the close attention of astute traders.

Today’s Watchlist:

There are no new setups in the premarket today. As always, we will promptly send an Intraday Trade Alert if/when we enter anything new.

Daily Performance Report:

Below is an overview of all open positions, as well as a performance report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based on the $50,000 Wagner Daily model account size. Changes to open positions since the previous report are listed in red text below. Please review the Wagner Daily Subscriber Guide for important, automatic rules on trigger and stop prices.

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  • Per Intraday Trade Alerts, we sold KOL for a scratch (gain or loss of less than $100), then entered a new position in BZQ.
  • In order to remove some risk from our long positions, and lock in gains in case of a sudden market reversal, stops have been tightened on most of our open positions (noted by the cells shaded in red color).
  • Reminder to subscribers – Intraday Trade Alerts to your e-mail and/or mobile phone are normally only sent to indicate a CHANGE to the pre-market plan that is detailed in each morning’s Wagner Daily. We sometimes send a courtesy alert just to confirm action that was already detailed in the pre-market newsletter, but this is not always the case. If no alert is received to the contrary, one should always assume we’re honoring all stops and trigger prices listed in each morning’s Wagner Daily. But whenever CHANGES to the pre-market stops or trigger prices are necessary, alerts are sent on an AS-NEEDED basis. Just a reminder of the purpose of Intraday Trade Alerts.
  • For those of you whose ISPs occasionally deliver your e-mail with a delay, make sure you’re signed up to receive our free text message alerts sent to your mobile phone. This provides a great way to have redundancy on all Intraday Trade Alerts. Send your request to [email protected] if not already set up for this value-added feature we provide to subscribers.
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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader