The Monthly Setups

Below are a couple recent postings from The Stock Skimmer section.  Three of the trades have been entered thus far and I will continue to update as additional positions are entered.

March 24th, 2013 – The Monthly Radar

Ticker: FRAN

Ranking: 5

Long or Short: Long

Entry: 30.15

Stop: 20.75

% of Cap Risk: 2%

Shares: 214

 

Ticker: UA

Ranking: 104

Long or Short: Long

Entry: 52.72

Stop: 42

% of Cap Risk: 2%

Shares: 188

 

Ticker: EVK

Ranking: 185

Long or Short: Long

Entry: 2.31

Stop: 0.95

% of Cap Risk: 2%

Shares: 1,473

 

Ticker: DX

Ranking: 1,409

Long or Short: Long

Entry: 11.17

Stop: 8.36

% of Cap Risk: 2%

Shares: 717

 

Ticker: BVSN

Ranking: 4,164

Long or Short: Short

Entry: 7.74

Stop: 14.29

% of Cap Risk: 2%

Shares: 307

 

Ticker: ALTI

Ranking: 3,129

Long or Short: Short

Entry: 1.99

Stop: 4.04

% of Cap Risk: 2%

Shares: 985

 

Ticker: ARIA

Ranking: 4,656

Long or Short: Short

Entry: 18.05

Stop: 26

% of Cap Risk: 1%

Shares: 253

 

Ticker: VISN

Ranking: 4,366

Long or Short: Short

Entry: 3.00

Stop: 5.58

% of Cap Risk: 2%

Shares: 780

 

Ticker: PVA

Ranking: 4,707

Long or Short: Short

Entry: 3.83

Stop: 6.82

% of Cap Risk: 2%

Shares: 673

 

Ticker: CETV

Ranking: 4,777

Long or Short: Short

Entry: 4.46

Stop: 8.02

% of Cap Risk: 2%

Shares: 565

March 11th, 2013 – The Long Term View On UNG

Natural Gas

Natural gas has been battered over the past few years, but the UNG monthly chart shows that a turnaround is currently developing.

The Setup

The ETF, UNG, has a one year return of -11.81% and a three year return of -36.79% (per Fidelity.com, as of 1/31/13).  It has attempted rallies since 2009 only to be knocked down further until a low in April of 2012.  The monthly chart presents a doji April 2012 candlestick for UNG.  A doji does not always signal an impending reversal, but it does show that a trend is at least slowing down.  From April 2012 to October 2012, UNG rallied on solid volume.  In the past, rallies have created a very good opportunity to short with UNG cooperating and proceeding to make another low.  From November 2012 to January 2013, UNG followed its typical trend of selling off after a rally although this time around it appears things could be different.

January of 2012 created another doji for UNG after the November to January retrace.  The retracement was not violent and stopped on a dime with the January candle.  This doji could be signaling the overall turnaround in natural gas.  If the ETF can make a move up within the next couple months, while at a minimum staying above the January low, then the chart shows the makings of an extremely promising trade.  The pattern that could develop is just a basic uptrending pattern; a low followed by a high, followed by a higher low.  Although a higher low can only be confirmed by a higher high a trade could still be entered with a good probability of succeeding. The ETF has some support from a trendine that is touching the lows of April 2012, June 2012, and January 2013, which could help catapult UNG. For the early trade to be entered the January high must be broken without the January low being broken.  The price action has demonstrated that this could be the bottoming of a massive downwards move, so I feel confident that a trade can be entered before confirmation, but of course proper risk management must be utilized.   The next section explains how to trade the setup.

The Entry

I do not want to get into the position just a few cents above the January high.  UNG is a volatile ETF, so a few cents does not confirm breaking a high or low.  Trading off of monthly charts means a greater range that one will be risking and provides greater upside potential.  The entry is 2% above the high of 20.20, which is 20.60.  The 2% qualification will protect against a false breakout.  I believe a trader or investor should only risk 2% or 3% per trade, which when utilized for this trade means a total of 6% to 10% of one’s capital invested in the trade because of the stop level.

The Stop

Since UNG has not confirmed the uptrend, the stop will be placed below the all-time low of 14.25.  The stop should also have some breathing room, so 13.97 should be plenty to prevent a shakeout.

Potential Exits and Additional Entries

The setup has the potential for the ability to add additional shares, while also raising the stop.  If the uptrend is confirmed then more shares will be added with new calculations being done for how many shares to purchase based on risk levels.  For example, if the risk amount is 3% on a $100,000 account then the original purchase at $20.60 with a stop at $13.96 would call for a purchase of 452 shares, so if the stop is hit then the account loses $3,000.  If the trade works and UNG confirms a new high, then the strategy will be to add to the position.  The next step will be risking 1.5% on the next trade.  The next buy point is $23.73.  The stop should be entered at $17.03, the new low that was confirmed with the ETF making a new high.  With these risk levels one should purchase 236 shares.  The cost basis will then be $21.68 with a stop below the most recent low of $17.03 and the total amount of shares held will be 688.  If the trade turns negative and the stop is hit then the dollar loss will be approximately $3,200, which is right around the 3% risk level that began the trade.

UNG does not have much resistance until a consolidation that was put in place from October 2010 to August 2011 between $38 and $52.  If the trade makes it to $38 then that is a 75% return or a dollar profit of $11,200, while risking about $3,200.  The risk reward on the trade is 3.5:1, which is solid considering how conservatively the trade is being made.  There is also a chance that UNG could set another low after the high, so another add to the position could then be entered.  It is impossible to plan for that at this point, but is certainly something to keep an eye on.  The ETF may also explode past $38 and up to $52, or even beyond.  A trader needs to be like a golfer and trade the setup as it lies.

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