• What's happening in UNG is no joke.

Some natural gas makes us laugh (like the scene in Eddie Murphy's The Nutty Professor), however, being long natural gas more likely makes us squirm.

United States Natural Gas Fund (UNG)

Source: StockCharts.com

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Now we are in search of a bottom and may find it this holiday season. An Arctic snap through the South doesn't hurt, but my focus is on this 50-week moving average, which has finally caught price and is starting to flatline. A move by price over the 50-week moving average with an RSI that catches some momentum and moves above 50 could be all the United States Natural Gas Fund (UNG)bulls need to gain some confidence. It wasn't a huge breakdown, but UNG has seen a 5% push lower. On Dec. 11, we were looking for a low of $18.50 to $18.60 if UNG lost the 50-week moving average at $19.60. It did lose the level and fell as low as $18.63. Maybe not perfect, but close enough to consider the pattern complete. Now there isn't a hardcore bearish pattern staring the ETF in the face but there's potential for a falling wedge, which is potentially bullish.

Watch UNG as it may be setting up for a nice trade back on the long side after the short side call completed the pattern in less than a week.

• A big beat looks tough here

By Tim Collins

Oracle (ORCL)is the biggest company reporting earnings this week. What happened to the big growth this name used to offer? Sun Micro is what happened. With all its good purchases in the past, the Sun Micro deal has been an albatross for growth. Purchases are actually another issue. ORCL did a lot of growing through acquisition and there comes a time when size is too much or opportunity too little to see the boost from acquisitions. So ORCL is back to growth by the cloud. I was surprised and a bit impressed by Adobe's (ADBE)quicker-than-expected adaptation to the cloud and new revenue models, but the model is one ORCL already has in place -- ADBE is nearly a tenth the size and its core product line runs very different from ORCL's. Plus, ORCL continues to lug around its hardware unit. That being said, we are seeing ORCL's competitors perform well, so I expect a solid report outside of hardware. A big beat here is tough. ORCL hasn't been known for big beats for some time.

Orcale (ORCL)

Source: StockCharts.com

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The options market is pricing in a move around 4%, although the chart seems to be pointing toward a 5% to 6% move. It is important to note that ORCL can take a full day or two to complete its move following earnings. The chart isn't extremely bullish or bearish, although the price pattern has a flag setup, which helps guide the breakout and breakdown prices. Some might argue that there's an inverse head and shoulders (yellow circles). I didn't really believe it was strong, so I consulted Helene Meisler, who sees it as well but doesn't trust it.

I will probably be looking at straddles or long straddles and short strangles tomorrow. I prefer to see this stock stay under $32.50 into earnings. If it goes above $32.50, downside support becomes stronger at $31.50, making the straddles much worse in term of risk-reward.

• But I keep them on a short leash.

By Tim Collins

Volatility remains low in measurement, but there is still an underlying tension in the market. Is the Volatility Index (VIX) lower because traders have been bombarded with so much non-stop coverage of the fiscal cliff that they've become desensitized? Yes and no. The fear may have gone but the immediate reaction to news headlines still exists. This is part of the reason I still favor straddles, but I also keep them on a short leash.

Straddles on the major equity or U.S. Treasury ETFs could explode if a deal is finalized. They would still do well if a deal doesn't happen and equities fall. I refer to a short leash for a reason, however, and the reason is the immediate reactions to news headlines. I'm not looking for the home run, but I'd rather take profits or adjust the position on the first major move. My preference is to take profit on half, then adjust the remaining half by either rolling the losing side closer to the money in a 1x2 ratio format (selling two of the losing out-of-the money options to buy one in or at-the-money). The reason for this is those immediate reactions have faded or reversed. A decent-sized move followed by a reversal back to the start of the move is one of those killers on straddles, so while I still favor them, the leash remains short.

• I would expect this to develop more as a pair trade with another financial, or even the XLF.

By Tim Collins

Banks are looking good, and they have been for a bit. When I was asked about Citigroup (C) over the weekend, it looked like a chart worth a quick review, as this stock is back on the verge of a breakout. The 52-week high sits at $38.71, just a few coins away from the current price.

Citigroup (C) -- Daily

Source: StockCharts.com

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I would expect a break above the 52-week high to draw in more buyers and a quick push to $40. However, something currently seems to be lacking in the relative strength index here. Momentum is strong enough, as seen in the stochastics, but the RSI needs to move higher with the stock. There is room for the move -- but, if it stalls, expect traders to start to turn bearish, given the divergence. I would actually expect this to develop more as a pair trade with another financial name, or even the Financial Select Sector SPDR (XLF).

Morgan Stanley (MS) -- Daily

Source: StockCharts.com

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The strongest two charts actually are two of Dougie Kass' names, Wells Fargo (WFC) and Morgan Stanley (MS). The latter looks like it is a very, very strong buy above $18.50.

XLF vs. Individual Financial Stocks (Table)

Source: Impactopia

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A few folks may look toward XLF, but note the correlation chart here for the last three months. There are no financial names above 90%, although Citi is up near the top and actually holds the top space over the last year. Morgan falls all the way down under 78%, so it may make for a great pair trade if a bearish divergence forms on Citigroup. Otherwise, it just looks like the best buy on a breakout.

• Not the level I'd trade in Apple.

By Tim Collins

Very little is important about the $500 level of Apple (AAPL) from a technical perspective; it's just a number.

AAPL

Source: StockCharts.com

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This was my chart from Friday, and $500 really didn't matter. The trading around there is likely to get volatile simply because people love to trade round numbers, but I don't think it is worth the trade around that level. I'd wait for a break back above $506 or until it's several dollars below $500 for a time frame longer than just a few minutes (look for 30 to 60 minutes or more).

• Looking for a long-term move higher.

By Tim Collins

Altisource Portfolio Solutions (ASPS) has been a huge winner for many folks here and on the year in general. Technically, it has been weak at these levels, but ASPS is trying to build a base and trade some volume in this $95 to $100 price range, which is necessary to get a longtime higher mover.

ASPS

Source: StockCharts.com

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There is a vacuum just below $95, so it poses a risk. RSI looks bearish, but if the TRIX crosses over where circled (it was very bullish last time around for price), this could offset the other weaknesses we see here. Most names in this space are consolidating, so I am contemplating straddles in several names. 

I believe much of the weakness is due to tax-gain selling, along with selling related to the spinoffs, which are also taxable. Many investors may be looking at holding the spinoffs, but may also need cash to cover the taxes associated with those spinoffs, so the original stock becomes the sacrificial lamb.

• Sometimes the hardest thing to do is nothing.

 By Tim Collins

I believe Doug Kass makes a good point in the comments section below: Many folks will look for trades regardless of risk-reward simply because of idle hands. There is an inherent need for folks to have action all the time. It is the gambler's mentality. These are often the same traders that sell winners too quickly and refuse to take a loss. But they always have to have a trade in play. Sometimes the hardest thing to do is nothing. My point, though, is doing nothing is still a decision and probably the hardest decision out there.

As far as trading stocks in front of earning, I believe there are two very distinct camps here. The majority either completely steer clear or jump in with both feet. Ironically, holding a stock, that you may have held long term, into earnings without hedging, is still trading a stock into earnings. Holding a short through earnings, no matter how long you've held it, is still a trade on earnings. The only way not to trade a stock through earnings is to have a completely neutral position or to be out completely. And being out completely means you are basically short, since you believe your risk-reward favors being out of a stock.

Trading pre- and post-earnings are different approaches. This is an area I write about and I post trades quite often, so it is easy to see the successes and failures. But trading earnings does not have to be about a single direction. It doesn't have to be just a "look" at a chart. There are many more things involved than just a look. Even from a technical standpoint, I am looking at the past reactions and the past trends. They do matter. I will still look at the fundamentals and valuations, which are reasons why I steered clear on a name like Mellanox (MLNX) and was looking at the short side for the name.

But earnings trades are more often about options and volatility. They trades should take history into account. There are times when I can find volatility priced far below historical averages and well below recent historical moves. There can be an advantage in that. With the advent of weekly options, the opposite can be true as well where volatility is priced well below expectations. Calendar spreads and diagonal spreads come into play in the current environment with a suppressed Volatility Index (VIX), yet some individual names having an implied volatility well above its own historical average.

Trading pre-earnings is not easy. It is not for everyone. But one can be successful doing it if they can define their approach, define risks, control losses and not try to take every trade on the board. Whether you know it or not though, almost every trade has been a pre-earnings trader, especially anyone who buys and holds.

• Apple is a perfect example of the choices traders face daily.

By Tim Collins

Fight or flight. It's not just a basic instinct, it's a primal instinct. It's a choice we make daily, but often to varying degrees. But there are times when we don't have a choice. Those aren't good times. Trading is one of those times. And there are times when it is worse. We've heard too much of those times recently.

Fight or flight in trading may not be so clear and the terms not so easily defined, but they apply nonetheless. We want to feel strong. We want to stand up and be right. We don't want to run from an investment or trade thesis no matter what is in front of us. But in trading, flight wins the day. Flight is nothing more than risk management. We've all heard the saying, "Don't fight the Fed." In general, it is true. Or, "The market can stay irrational longer than you can remain liquid." Simply put, these sayings come from experience. They come from the traders who stood up to fight not recognizing the fact trading is not a fighter's game. It is about survival. It is about fleeing the trade, which is clearly against you rather than fighting a trend. Apple (AAPL) has been reminder for several months. I've known many bulls who have been pushed to the brink by fighting for their long position. Beyond just holding a position, they've continued to add as AAPL continues to fall.

"It's too cheap." I've heard it repeatedly. Fundamentally, I buy into the bullish arguments much more than the bearish ones, but AAPL continues to fall. I believe the bulls will ultimately be proven right, but the trek higher may come from $50 higher or right here based on first weekend sales in China for the iPhone 5.

But buying AAPL all the way down has been the losing side of a fight. In fact, traders make decisions every minute of every day. If you are long and holding, every minute you hold is really a decision to be a buyer. Every minute you remain in cash, you are a seller. We make decisions more often than we realize. Reviewing trades, determining whether you followed the fight or flight path includes examining times of inaction as much as times of action. Trends have ruled the day for the better part of a decade, and I don't expect the trend to end in the foreseeable future, so be sure to examine how you've performed in the most obvious of trends, like AAPL, over the past few months.