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Alert: UNG breakout

United States Natural Gas Fund (NYSE:UNG) is breaking out from making a move up ever since it drop from USD 64 to USD 7.35, with various indicators such as Stochastic, RSI, MFI and MACD at oversold region. MACD histogram and RSI is showing bullish divergence. ADX is showing bear is losing strength. Support is at $6.90 and major support turn resistance is at $8.50.

ung downtrend breakout

ung downtrend breakout


March was one of the best months in recent memory for most investors. Equity markets surged on renewed consumer confidence and continued strong demand from emerging markets. The ETFdb 60 Index, a benchmark measuring the performance of asset classes available through ETFs, climbed 3% during the month, an impressive gain that was held in check by the significant bond allocation in the index.

But not all asset classes enjoyed a March to remember. Fixed income investments were relatively flat, while some broad-based commodity funds inched lower. And few funds have ever turned in a monthly performance worse than the United States Natural Gas Fund (UNG) did in March. Investors in UNG checking their accounts today will see that the fund slid by more than 20% during the month of March. And unfortunately, that big red number is no April Fool’s Day gag.
Behind The Freefall

So how did UNG lose 20% in just 23 trading days? Surprisingly, the usual suspect wasn’t to blame this time.

UNG implements a futures-based strategy to accomplish its objective of tracking changes in the price of natural gas. As such, the fund’s value is impacted by three factors: 1) changes in the spot price of natural gas, 2) the “roll yield” incurred or earned when expiring contracts are exchanged for next-month contracts, and 3) interest earned on uninvested cash. UNG became a case study in contango last year, as the second of these became the dominant factor in the fund’s returns. Natural gas prices finished 2009 about where they started, but UNG lost more than 50% of its value (see What’s Wrong With UNG?).



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