Natural gas markets rallied after initially gapping higher on Monday from extreme lows. By doing so, the market looks as if it is ready to go higher, perhaps reaching towards the 50 day EMA as we have broken above the top of a couple of inverted hammers. The straps a lot of sellers, and therefore should send this market higher. If we can break above the 50 day EMA that would also be a very bullish sign as well, as the natural gas markets are starting to enter the most bullish time of year.

The most difficult part of this trade every year is to see when the market is ready to take off. Selling is all but impossible at this time a year, although there is the possibility that a headline or inventory number that could come out that is much weaker than anticipated, so therefore it’s likely that any pullback will only offer a nice buying opportunity. If that’s going to be the case, and the fact that we have seen a bit of a pushback at the $2.20 level, I think it’s only a matter of time before that floor continues to push the market to the upside. If we were to break down below that level, it would be rather impressive as far as selling pressure is concerned, as we are trading the November contract now. Markets should find plenty of demand coming soon, as temperatures drop.

Any time there is a bit of a trend change, it’s likely that you will have a lot of noise. Keep in mind that the market has been selling offer so long that it’s going to take a lot of momentum to finally break out to the upside. I am going to be a buyer of dips, as we should start to take out the 50 day EMA, the $2.40 level, and then eventually the 200 day EMA. Beyond that is the $2.70 level, as it is the most recent high, so clearing that obviously would unleash a frenzy of buying. At this point, it’s simply going to come down to the weather report on a weekly basis, as is typical in this pair. We do tend to rally until the beginning of January before we start to sell off yet again and break down rather significantly.

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