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UNG is poised for a rally. The three month chart suggests that the seasonal uptrend in natural gas is about to begin. UNG has broken out of its 50 day EMA and if this trend continues based on seasonal demand, storms damaging equipment and other factors, we’ll likely realize at least a 20-25% appreciation in value up from this $40 range that UNG is trading at. In addition, natural gas futures contracts are trading at a curve that suggests a generous appreciation in value. This suggests that investors believe natural gas will appreciate in value over what’s expected to be a bitter winter.

“The irrational risk repricing that occured thus far is a byproduct of confidence associated with a mystery number that investors speculate over optimistically.”

  Gold is outperforming the market by a large gap now. This is expected to keep up until gold potentially reaches $800/oz levels based on increasing US dollar weakness, fear driving traders in to safe assets (gold, bonds, etc) and away from stocks.

With the housing recession potentially spreading to other sensitive sectors, we see the potential for an economic slowdown being exacerbated by the ever weakening US dollar. Gold, which is a traditional safe haven in times of crisis and fear, is gaining strength. December 2007 futures are trading over $710/oz up from a low of $655/oz only several weeks ago. Traders that were short gold futures have covered or reversed positions and investors have been buying gold in large volume.

I would recommend buying gold on any weakness going in to the end of the year. We’ll see the dollar continue to weaken further, especially if the Federal Reserve cuts interest rates. This will cause traders to reprice gold higher accordingly.

Good luck trading!

Home builders have had a very rough run lately. It’s probably not over by a long shot either. Those engaged in the industry generally understood that residential real estate was overbought and inventories would eventually grow very large if building kept on pace. These same builders kept building at the same pace, all the while creating an astronomical number of unsold developed properties in their portfolio.

With the credit crisis stifling mortgages and home sales, these builders are in a very risky position with portfolio’s full of unsold homes that are now depreciating in value by the day. Without substantial rate cuts, the housing market will likely not rebound for a few years. This will force many home builders to sell their inventory at a discount and others to declare bankruptcy. It may be a good time to watch ITB (see below chart vs. CFC) and consider shorting it.

I’ve charted ITB against CFC because I believe they follow a very similar downward trend without support. CFC is guiding even lower and ITB is likely to follow as the situation worsens throughout 2007. Traders may want to short ITB and go long gold, US treasury bonds or Euros for a potential recession hedge. Good luck!

Forex traders may want to go long Euro short US dollar and reverse positions on any indication that the trend is over. Stock traders may want to consider adding the FXE ETF to their portfolio as a hedge against the weakening US dollar. Keep an eye on this trend because it will also eventually raise the price of imports, goods and services and potentially increase US exports, too.

The weakening dollar will also likely cause an already established “flight to quality” run to bonds to continue.

Today, as the dollar weakened, gold rallied in response by 2%. Traders also speculate that this rally in gold is in response to the anticipated US Federal Reserve rate cut on September 18th. AUY along with other gold miners also rallied in response.