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Wednesday, January 16, 2013

Review of Natural Gas

Investors might natural gas's rising DI (chart 1), an indication of accumulation, as a signal a change in trend is coming.  The message of the market, however, favors continuation.

  1. The slow transition from risk-on to risk-off is already underway.  A sustained natural gas rally during a risk-off transition, while possible, is not highly probable.
  2. Relative participation (open interest) remains relatively high (chart 2).  This favors continuation of the trend (down) until participation declines.  Markets tend to change direction unexpectedly when everyone but the invisible hand hates them.

Chart 1:   Natural Gas (UNG) and Natural Gas Diffusion Index (DI)


Chart 2:  Natural Gas (UNG) and the COT Futures and Options Open Interest Stochastic Weighted Average



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