First Signs of a Top
The market finished the day flat after a hot start to trading yesterday. In the morning stocks, propelled by the bullish momentum from last Friday, raced higher. But by lunchtime the indices had reversed all those gains, and a few even moved into the negative.
The combination of the quick start and afternoon pullback resulted in a doji candle. The doji candle indicates indecision between buyers and sellers and is often a prelude to consolidation, and can sometimes also signal a top.
Unless the indices gap down today, I doubt that yesterday will mark a top. But yesterday's doji in the indices confirms the bullish trend is exhausting itself by moving higher without consolidation.
The indices are long overdue for a pullback. And yesterday was the first session in a long time where selling pressure was noticeable. The euro also smashed $1.30 price resistance, which should at least act as a short-term barrier to the recent advance.
In order for the indices to make any kind of burst higher, the bulls need blowout earnings from Apple (Nasdaq: AAPL) tonight, incredibly strong durable goods for December Thursday morning or QE3 language by Ben Bernanke tomorrow afternoon. Of course a resolution in Greece would also be a bullish development since it would likely ramp the euro, but a decision doesn't look probable until closer to February 13.
On a more positive note, natural gas futures were up 9% yesterday. More importantly, the commodity looks to have carved a bottom too. Last Tuesday I mentioned that a bottom was likely near. The bulls put in a bullish engulfing candle yesterday, and with any positive follow-through today, it would be considered a bottom.
Unfortunately, there are not a lot of great ways to trade natural gas other than pure futures contracts. Plenty of stocks have natural gas exposure, but rarely do companies only produce natural gas. Most companies have a combination of oil and natural gas.
In the past, my favorite natural gas name was Kodiak Oil (NYSE: KOG) but the stock looks stretched. Chesapeake (NYSE: CHK) could be a good alternative. There is also the United States Natural Gas Fund (NYSE: UNG), which is an ETF that supposedly matches the natural gas futures contract.
