nat gas

clipped from the reformed broker:
http://www.thereformedbroker.com/2012/02/29/trade-of-the-year/
see also
http://allstarcharts.com/

Take a look at the recent consolidation in the United States Natural Gas Fund (UNG). The breakdown here below the triangle is typical. This type of brief pause usually resolves itself in the direction of the underlying trend. In this case it is clearly down. As scary as it may sound, the 4 point base in the triangle gives us a target somewhere in the 17.50 area. We may not get that low, and we can just as easily go even lower. But I have a feeling that a vicious tradable rally will develop from this breakdown.

Look at the extreme lows recently put in RSI in the chart above. As $UNG makes new lows in price, I would want to see a higher low made in the Relative Strength Index. This potential bullish divergence could spark the rally. But we’re not there yet. We’re looking at a 17.50 target where we can start looking for entry points, but it could come sooner. A key reversal day would not surprise me. Perhaps a day where Nat Gas sells off early and rallies back hard in the afternoon? Or maybe a big gap lower after a weekend with a solid all-day rally throughout Monday.

The idea here is to find a risk/reward where we can risk less than 4-5% with the potential to get back to the mean. In this case, a 200 day moving average that could be twice the value of the entry point.