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Short Gas 2012-10-23

I have gone short gas at 2:23, my time, at a price of 3.80. Today, we saw a significant drop in the price of natural gas futures. The drop was roughly 20 points. This morning, I found myself deciding whether to go long sugar or to short gas. I chose the loser of the two. I went long sugar, and that trade failed. I was stopped out at a loss. I'll talk more about that later.

I chose not to short natural gas because I find that I have somewhat more difficulty accurately finding tops in gas for selling short, than I do finding bottoms. That is, on the 60 minute charts. So when I see the the kind of MACD divergence that occurred early this morning in natural gas, I prefer to let it take its first leg down and then catch the short sell on the first swing back to the moving average. At least until I feel more comfortable in this particular market. This is what I have done, and you can see how it played out in the following chart. Also, I've switched over from the November to the December contract in gas.

Observe this 60 minute trading chart for December natural gas futures.

The red lines indicate the MACD divergence that formed nicely overnight. Although it was very nicely formed, these can be deceiving when trying to pick a top. I find the divergences to be somewhat more reliable when trying to spot bottoms, at least in the 60 minute time frame.

The arrow indicates my entry point. At which point I perceived the price to be showing good value before, hopefully, taking another leg downwards during the day session of the 23rd (Oct 2012) or later in the week. As always, I've got a trailing stop loss order working for me to limit my potential losses should the market go against my position. Normally, I would prefer to see the price come closer to the moving average. In this case I felt that it was correct to enter even though the moving average was still nearly 5 points off.

In other markets, I've done two bad sugar trades in a row based on the same bullish sentiment. It seems like maybe the market just doesn't have the energy that I thought it did. As a result, I'll most likely be stepping back from sugar a little and re-asses my opinion. Its time to play the waiting game and simply see how things develop as a spectator.

I was somewhat tempted to short the US dollar index last evening. However, I am actually looking for lows and buy signals in the 79.00 area. As a result, I ignore the short selling signal I'm getting and wait, as with sugar, and watch.

Regarding gold, I'm pleased with the way things are developing. I am still waiting for better value (cheaper prices), and a good technical buy signal. As with sugar, and the USDX, I am playing the patience waiting game with gold prices.

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