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Pascal
09-15-2011, 12:39 PM
I received the following e-mail from a reader of the daily comment of September 14.
Before discussing this interesting message, I want to stress that I do not give personalized advises.
This is too much responsibility and I noticed that the more advises I gave in the past the more requests/questions would consecutively come. What I share in the daily comments is my own market analysis upon which I base the trades that I execute independently of the IWM/GDX robots.

The message is here:
Yesterday I bought my first trade based on your comments that natural gas makes
for a high probability long trade. During the recent hours, however, natural gas prices
have fallen through the floor and have lost a lot. Is there a logical explanation for this
and do you think I should cut my losses and sell right away or wait for the volatility to
fade? Also, if it is expected to go up, would you expect $4.60 to be a good upside target?

A first trade is very important and is usually a loss. You need to keep this loss small and survive for another trade.
On my comment of yesterday, I did not advise to buy Nat gas, but to buy Nat gas producers (I stated SWN, UPL and ECA. I myself bought SWN/UPL), because the market was ready to bounce and these would get the extra juice from a Nat gas futures buying activity. You can see that even if Nat gas dipped today, these stocks did not.

Regarding the Nat Gas trade, I believe that you should take your loss if the price breaks below support (which I doubt it will) or if the TEV breaks below its average, which is certainly a possibility. The most difficult is to manage this together with contract roll-overs.

As a reminder for everyone here: do not trade the UNG/USO ETFs, because they need to roll their contracts and hence incur losses. You can see that on the comparison to their respective Futures prices.


Pascal

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nlenz
09-15-2011, 12:54 PM
Thank you for the clarification.