Natural Gas Forecast: Testing Major Support

Natural gas markets initially tried to rally during the trading session on Wednesday, but then fell into the support level underneath as perhaps a bit of sympathy to the less than stringent and bullish inventory figures coming out of the crude oil sector. That being said, this is a market that is ready to turn around and rally for the winter, and now it is only a matter of time before we get some type of weather report that kicks this market to the upside. In the short term though, it looks as if the Thursday inventory figure is going to be in focus, as we are touching major support around the $2.25 region.

I believe that support extends down to at least the $2.20 level, and perhaps even lower than that. However, I recognize that waiting for some type of bounce is something that will need to be done. The think that natural gas is going to continue to go much lower for the longer-term is to ignore the fact that demand will certainly be picking up as we head into winter. We are currently trading the November front contract, so it makes quite a bit of sense to consider that the cold weather will eventually become the main feature of this market. However, we have not gotten to that part yet and as a result, we continue to find this market drifting lower.

I anticipate that the inventory number won’t necessarily be a catalyst by itself to push this market higher, as what we need to see is cold weather on its way to Boston or New York as it is a major fundamental reason why the market could go higher. When it does, then large storms will bring in more demand over the winter, and that is probably one of the more reliable trades that you get in this marketplace time and time again. Every year, we get a sudden jolt higher and that’s what I’m hoping to trade going forward over the next several months. This is just as reliable as eventually, the rally runs out of strength early January, and then it sells off rather drastically. In the meantime, I do believe there is significant support underneath but I need to see some type of candlestick to convince me that we are ready to continue to go higher.

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