• The natural gas markets have been all over the place in the trading hours of Wednesday, as we continue to see a lot of noisy behavior.
• It’s worth noting that natural gas is sitting at the 50 Day EMA and the front futures market, and this means that a lot of technical traders will be paying close attention to this market.
• After all, natural gas is an extraordinarily volatile market, and it can be a bit of a headache just waiting to happen.
• I’d be careful right now, because we are also in the midst of a cyclical trade that I have been quite vocal about publicly.

(Click on image to enlarge)

Keep in mind that this time of year temperatures typically pick up and start going higher in Europe and the United States, and this will do a lot of things to this market as demand should, at least in theory, drop. I understand that there are concerns about the economy as well, and if those concerns end up being valid, that could continue to put a little bit of a lid on the natural gas market.

That being said, this is a very noisy market that you need to be careful with, and of course it does tend to move on the latest headlines as far as the next couple of days and the weather. Position sizing is paramount when you are talking about this market.
 

On the Precipice

I think at this point time we are on the precipice of the cyclical trade when people start shorting natural gas due to a lack of demand. After all, it is spring in the northern hemisphere, and as temperatures pick back up, we just don’t see the demand for heating. This will be especially true in the northeastern part of the United States, which is one of the biggest consumers of natural gas in the world. Beyond that, we also have to worry about the Chinese economy, and if it is in fact slowing down, that means that less natural gas may be consumed there as well, although I’m the first to admit that the Chinese use a lot of coal as well.

I sell rallies at this point, and I do believe that eventually this market will find its way down to the $3.50 level. That doesn’t mean that it will be easy to get there, nor does it mean that we will get there tomorrow, it’s just what I am aiming for with a low levered position.

More By This Author: