The downtrend continued in Natural Gas last week as the November futures contract plunged to a new low for the year at 3.745. Bearish fundamentals and a weakening technical picture make it appear that this market is headed lower with only oversold conditions preventing a complete washout.
With no visible support at this time, traders should continue to focus on the pair of downtrending Gann angles at 3.826 and 3.897. Although there was a penetration of these angles two weeks ago, the inability to close above them on a weekly basis means that the attempted breakout was most likely only short-covering.
Technically, since it is in the midst of a prolonged break in terms of price and time, the strongest sign that a low has been reached will be the formation of a closing price reversal bottom. This occurs when a market makes a lower-low than the previous week and closes higher. Of course a follow-through rally will be needed to confirm the bottom once it is in place. This means that bottom-pickers are going to have to be patient.
When markets reach extreme levels, something usually occurs fundamentally to put in the bottom. Technically the market is in this position, but there doesn’t seem to be anything on the horizon to help put in the bottom. With the U.S. Federal Reserve now forecasting “significant downside risks” for the economy, it doesn’t look as if there is going to be a pick up in demand at anytime soon.
Factors Affecting Natural Gas This Week:
• Weather – Mild temperatures throughout most of the U.S. should mean demand for natural gas will remain low. Also, at this time there aren’t any significant tropical storms forming that pose a threat to production.
• Supply and Demand – Gas supplies rose the week-ended September 16. The increase of 89 billion cubic feet to 3.201 trillion was above the five-year average gain of 72 billion. Unless this trend continues, there will is no fundamental reason for the market to go up.
• U.S. Drilling Rigs - Keep monitoring this figure because one day it may turn bullish. Right now there are 912 drilling rigs. A drop to below 800 would be bullish, but it is going to take some time to get there.
• Technical Analysis – Oversold conditions can trigger a short-covering rally at anytime. Short-traders have to avoid getting caught in a bear-trap at low levels. An intraday closing price reversal bottom may be the first sign that a near-term low has been reached.
By. FX Empire
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