August 17 - Where "PLUS" is actually a MINUS

I've been following natural gas for a while because I believe the commodity is under valued at he current price levels. However, starting to trade HNU on the TSX I soon realize that the using this ETF as a method of trading natural gas can lead to very inconsistent results.


HNU is also known as the "Horizons BetaPro NYMEX Natural Gas Bull PLUS ETF". This ETF is designed to capture double the daily movements of natural gas. I'm not going to get into the details of how exactly they produce these double leveraged results - there are plenty of articles which describe the method of achieving this double results. What is essential to know here is that the double return is achieved on a DAILY basis, not in the long-term. In the long-term the returns of HNU can vary greatly with what the price of the underlying natural gas is tracing.

Let's look at a recent price of natural gas commodity:




See the pattern? The supports are clearly visible at around the $3.30 area, once at the end of April and once mid-July. Now let's take a look at a chart of HNU:



Does this chart look the same? You can clearly see a divergence of price at the end of June where HNU breaks lower at the point where there is support in the underlying commodity.

This ETF has traded much lower than its $5.50 support line, while natural gas is still above its May 2009 support line.

Given all this, how can a swing trader do technical analysis on an ETF where the price is un-correlated to the underlying on a time horizon of more than one day!

Leveraged ETF usually contain the words plus, double, triple, or ultra in the title. Be careful of this kind of leveraged ETFs if you planned timeline for the trade is longer than a day.

July 2, 2009 - HNU update

This is a quick update on HNU.... I am watching it as it fluctuates today and if we finish the day below 5.40 I will close the position and wait on the sidelines.

June 30, 2009 - update on HNU

Today HNU dropped on large volume due to an unfavorable report from the EIA stating that "abundant natural gas supplies converge with weak demand driven by an 8-percent decline in industrial sector consumption."


Although I do like Nat Gas as a long-term play and believe that it will do very well when we are out of the recession and well into recovery, I have to keep to my trade rules and technical signals. My stop-out target is below 5.50 and today I came close to getting stopped out.

We have unsuccessfully tested the 50day moving average, and that is bearish. However, counting today's move, we have also re-tested the 5.50 support level 3 times in the past 2 months and stayed above it.

Let's take a closer look with the 2-day chart, broken down in 5 minute intervals:

The 5.50 support line was tested twice during the day but proved to be strong. However, we are not out of the red zone yet.

I have given this trade time to work but it is starting to go flat. I will look to the next trading days for signs of support, otherwise I will close out the position and stay on the sideline and prepare for another approach in the future.

June 15, 2009 - Natural Gas breaks 50day moving average

In the recent weeks the price of Natural Gas has been swinging up and down, testing key support and resistance lines, which is reflected in the price chart of HNU.


After Thursday's test of the 50 day moving average, I expected a key move to define the power of the bears and bulls. Today there was a great move to the upside, breaking the 50 day SMA and most importantly, closing above it, at the top price for the day.



Looking at the 30 minute chart above, we have broken the $6.80 resistance that we saw Friday (June 5th) and again last Thursday (June 11th). We are looking to support a short-term incline that has formed on the short-term.

The only thing that concerns me is the way we are moving, it seems to be in quick burst to the upside, instead of a steady climb which can be sustained far longer. I will look to the rest of the trading week to see if we can keep a steady uptrend. The next resistance level to be tested is the $8 mark.

Disclosure: I own HNU in my portfolio.

June 11, 2009 - HNU is HOT

WOW!!! What a day for HNU. The daily volume once again reached a high, indicating big interest in this ETF. Today's volume was accompanied by a surge in prices. Looking at the daily chart below, the presence of the 50day moving average as a major resistance line is re-enfornced as we failed to close above it, even though it was broken intraday.

However, the fact that we shot up from the drawn support line also re-enforces the 5.50 - 5.80 level as a well tested local support.



As discussed in the first post on HNU, price is getting squeezed between the 50day MA and the support line. Even though there is still no sustained breakout, today's move is a bullish one. Lets take a look at the (30 minute) intraday action over the past 14 days.


The chart above is great evidence of the presence of technical traders in the market that had put their sell orders resting at the top of the recent high.

I am watching this ETF very closely, as like toady, any move will be fast. Tomorrow will be a test for the recent high and the 50day moving average. Watch for false breakouts to the upside. As there are still a lot of sellers in this market, tops will be formed quickly.

I added to my position yesterday at 5.90, and will be looking for a sustained rally above 6.80 to add more. Tomorrow will be interesting......

Disclosure: I own HNU in my portfolio.

June 9, 2009 - Don't Ignore Volume

Along with posts analyzing different trends, I will at time post educational or "thought pieces" to my blog. These consist of my thoughts and takes on trading and different trading methods, indicators, and strategies.

Today, I will talk about volume, which is often overlooked as an important indicator of what is happening behind the curtains, masked by the ups and downs of price.

Many times I've heard the increase in volume described as a "more" buyers or sellers in the market. It is very important to keep in mind that the volume describes the number of shares which have changed hands. This means that there were just as many buyers as there were sellers in that day who were willing to change positions at those price levels.

One thing to keep in mind is that an increase - usually compared to an average daily volume - can be an indication of an underlying change.

An increase in volume can result from different scenarios playing out. One could be that "big money" is coming in. This is institutional investors or funds that may be buying in big volume. Although they would try to space out their positions as to not move the market and absorb the sellers, their move will still increase volume. Another reason could be that big traders have flocked to a certain stock or security and they are trading the hell out of it, increasing daily volumes. Either way, there is much focus on this particular stock or commodity.

As an example, lets take a look at the weekly chart of HNU (Ultra shares for Natural Gas):


In this chart, I've separated the volume chart and dropped it to the bottom for more clarity.
At the right side of the chart, a ramp up in volume is clearly visible. Last week the volume sky rocketed to over the 60 million mark when the 3 month average daily volume has been around 4 million shares. This, combined with the stop in downtrend of price signals change.

Below is the daily chart of HNU, which you have seen posted on this blog many times, as I am following it closely.


The daily ramp up in volume is visible in more detail here. This increase in volume does not necessarily mean that the stock will take off from here. There are just as many sellers willing to sell at these prices as there are willing buyers - there is now more of them who are actively changing positions. This indicates a possible shift in market psychology. I've redrawn the support line as evidence has built up that support may not be up trending but more "base building". Let's watch for more developments....

Disclosure: I own HNU in my portfolio.

June 4, 2009 - intraday HNU.TO

HNU has been a hot topic in this blog and others over the past couple of days. I've seen many articles on nat gas and heard traders talk about watching this commodity closely.

This morning at 10:30am, the nat gas inventories reported an increase nat gas storage, which drove the price of HNU down to a low of $5.46. To see intraday action better, I've posted the chart below which shows a monthly chart of HNU, plotted on an hourly basis.


Most trading books, tell new traders to put their stop-losses just below the previous low. In this case, this would be at $5.50, a couple of ticks below the low of $5.53 on May 26th. This morning HNU went down just enough to hit these stops, only to bounce back.

Let's see how the rest of the trading day plays out....

June 3, 2009 - followup to HNU.TO

Today was an interesting day for HNU. The price dipped below $6 intraday, resulting in a single day drop of around 20%. Buying opportunity or time to run away?!?!



Even with today's drop we are still technically within the uptrend channel. Today the price touched the short-term uptrend line (drawn in blue) and bounced off it - however, this is not yet a clear signal of a strong trendline. More support is needed.

The chart has created a triangle pattern at the right side, squeezing the price between the trendline and the 50day SMA. The next few days will be a good test to see if the bulls will take-over and push the price through the 50day SMA or if the bears still have a strong presence.

Tomorrow at 10:30am the EIA will announce the Nat Gas inventories, which will no doubt effect the prices, so keeping the current chart pattern in mind, look for swings and false breakouts.

June 2, 2009 - HNU.TO Consideration

Natural gas is one of those commodities that has taken a massive beating over the past year. I've been following the ETF that tracks Natural Gas on the TSX: ticker HNU.TO

With the current changes in the market and the return of cautious optimism to investors I am looking to get into Nat Gas. There are fundamental reasons why the price of Nat Gas doesn't make much sense below $7, but I am not about to go over the fundamentals here. All information is reflected in the price action. Let's take a look:



Above is the chart of HNU.TO drawn with a 200day (red) and 50day (blue) SMA. I've drawn the lowers trend channel for the downtrend, and the 50day SMA has served as a very effective ceiling to the downtrend. However, in the recent days, we have seen a test of the 50day MA which failed, BUT here we are going for a retest. Given the recent volume, it shows many have returned to trading this ETF.

The RSI is near 50, which does not indicate an over-bought position. MACD has been trending higher for a while in a tight range.

I am looking at this for a long term trade as comodities usually set up long-term runs when the trend changes. I will look to build a small position here, and add near the $6.50 line.