Saturday, May 9, 2009

Sector Spotlight: Natty Gas

This past week we've seen commodities exhibit relative strength vs. the broader market. In particular I want to highlight the resurgence in the Natural Gas sector ETF.

"The United States Natural Gas Fund, LP ("UNG") is a new way for investors and hedgers to manage their exposure to energy...UNG is an exchange traded security that is designed to track in percentage terms the movements of natural gas prices. UNG issues units that may be purchased and sold on the NYSE Arca."
Over the last 5 days UNG has run up around 25%, while the SPX has rallied a mere 5% - an obvious out performance.

1. Break of the down trend line
This downtrend line has been intact since around OCT 2008. Breaking a 7 month trend line is significant in showing a shift in sentiment.

2. Break of the 50 MA
UNG hasn't been above the 50 MA since July 2008, when it initially broke down and started its swift descent. The fact that it's finally mustered the strength to pierce the declining 50 MA bodes well going forward.

3. Increase in volume
High volume helps confirm the validity of any breakout, since the more buyers that step up and participate, the higher the odds it continues higher. High volume also helps indicate institutional money flow. You can bet it wasn't just a consortium of individual investors like you and I pushing UNG higher the last few days. With volume surging to 3x the daily average , some of the big boys were accumulating shares.

Some of the bigger companies within the nat gas sector that have followed the bullishness of the UNG are: APA, APC, DVN, EOG. Keep an eye on those going forward.


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