With the cold weather season rapidly approaching in the United States, I thought I’d take a look at the natural gas market this week. Currently, the market is going through the time period which would normally lead to a sideways to lower chart pattern. However, this year, the natural gas market has taken on more volatility than expected.
The price action the past seven session has been particularly interesting, but in hindsight, we have to conclude that the volatility has been all about thin trading conditions and rapid shifts in the weather patterns.
On October 19, for instance, sellers took control, driving the December futures contract through a recent bottom at $3.013. It wasn’t much of a break down, however, with the market stopping at $3.012 before rebounding to close higher on the daily chart.
(Click to enlarge)
The price action indicated two things: buyers were coming in to support the market or bearish traders were reluctant to sell weakness.
After hitting the new low for the month at $3.012, the subsequent reversal bottom trigger a gap higher opening on October 23. This move was strong enough to take out a previous top at $3.185, changing the trend to up.
So what we had was a change in trend to down then a change in trend to up within a two-day period. Talk about trader indecision.
One can’t blame the buyers, however, because the weather bureaus put cold into the forecast for the Midwest and East…