FCG + GASL Natural Gas Stocks Related ETFs – MA Expansion Potential New Up Trend

by Olivier on September 12, 2013

This trading idea is not exactly a ‘momentum’ or ‘established trend’ kind of set-up. Instead it is trying to catch a new emerging trend or temporary thrusting move to the upside after a rather long basing pattern. In plain English: this is not the most explosive set-up but more suited for those who want to participate very early in a potentially new trend.

That being said, FCG – First Trust ISE Revere Natural Gas ETF and GASL the 3x leveraged ETF are two ways to play that new trend I see emerging. As a technician you should usually stick to the ‘macro –> micro‘ method of analyzing a chart. Sounds much more complicated than it actually is. It simply means looking at a longer time frame first before you zoom in into a shorter time frame. ‘Big picture analysis first‘ so to speak. So here is the weekly FCG chart to start with:

The weekly chart shows FCG has broken two trendlines – one with a downtrend slope and one horizontal trendline that has been acting as support and resistance for quite some time. Also worthy of note is CHK – Chesapeake’s Energy’s recent gap up and new thrusting move to the upside. CHK is easily one of the most hated stocks out there which adds significance to its recent up move. FCG is now trading above its weekly MA 30. According to Weinstein’s stage analysis FCG could now be entering stage 2 and move up from here.

Here’s the daily chart of FCG:

The daily chart is displaying a clearly visible MA (moving average) expansion. This simply means the faster moving averages trade above the slower moving averages. In this case the 20 trades above the 50, the 50 above the 100 and the 100 above the 200. All are now displaying an upward slope.

Conclusion: Although leveraged ETFs are not recommended for longer term holding periods I decided to go with an initial GASL position. The reason is that during a thrusting move or a smooth sustained directional move the leveraged ETFs tend to reflect their underlying pretty well. During sideways trends value erosion is much more pronounced. I think a 10% price move to the upside with FCG is a reasonable expectation considering the above mentioned MA expansion. GASL should be able to move up at least 20% if FCG hits that 10% upside price target.

Your portfolio is your best indicator for your OWN strategy. Have you made money in the past 4 or 5 trades? If not, then why increase size? Trade larger when trading well and smaller when trading poorly. This helps mitigate damage and make you big money when things are working. Most traders do the opposite; they try to revenge trade and get losses back too quickly by increasing size; this is how a trader blows up. Many traders say they want big returns, but they don’t, most traders want big action; they can’t sit out and wait for the right moment. Being too aggressive during risky periods and not aggressive enough during low risk periods are common among most traders. – Mark Minervini

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Charts: http://stockcharts.com/public/1109839/tenpp

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