I was looking at two time and price periods this month for a possible low in the United States Natural Gas Fund (UNG). The first window produced a buy trigger followed by a minor rally and then a failure. This next decision is coming up right now.
First, as far as price is concerned, I'm looking at a relatively wide support zone that comes in between $18.31 to $19.28, with the focus within that zone in the $18.31 to $18.91 area. The price cluster by itself is considered a trade setup. If we can test and hold above this zone, we want to drill down to a 30-minute chart and look for reversal indications that will tell us that it is worth placing a bet against this next key support zone.
Besides the Fibonacci price parameters that are telling us to watch for a possible low, I am also looking at a cluster of Fibonacci time cycles that suggest we watch for the same thing. When a cluster of these cycles come together within a relatively tight range (similar to what we look for in price), the odds of a reversal of the trend increase. Note that the cycles on the chart are coming in between Dec. 12 and Dec. 14.
But I don't want you to step in front of a freight train here. UNG is on my radar to watch for a buy trigger, but only as long as we continue to respect the time/price parameters outlined above. In other words, this is a heads up to a possible opportunity at the ground level. (For more information on what I use to trigger into a trade, please refer to the "handy guide" I recently posted.)
I will watch a 30-minute chart and look for two things to occur before I consider an entry on the buy side. I want to see a prior swing high taken out, and the 8-day exponential moving average cross back above the 34-day EMA. The data on this chart is a little spotty, but it should suffice. I've marked a prior swing high that would need to be taken out at that point (though this may shift to a lower high as the market unfolds). We also need to see the 8-day EMA (blue line) trade above the 34-day EMA (red line). The initial risk can be defined below the low made prior to a buy trigger, or below the low end of the price cluster zone at the $18.31 to $18.91 area.
If you want to go the very conservative route, you can wait for the 5-day EMA to cross above the 13-day EMA on the daily chart to trigger an entry. This will occur further away from the zone we are risking against, though the odds for follow-through will be higher. To give you a visual of when the daily chart crossover has triggered in the past, I have illustrated the crossovers on the daily with blue arrows. (Note that on the daily chart, I use a 5-day EMA and 13-day EMA.)
Ready, set and don't go -- unless you see a buy trigger.