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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Why The Natural Gas Rally Isn’t Over Yet

Natural Gas Storage

Crude oil took a backseat to the natural gas market this week with prices soaring 7.52% since last week’s close and 16.35% since the close on May 27. Thursday’s close in the July Natural Gas futures market was $2.593, its highest close since the week-ending January 8.

The main trend is up according to the weekly swing chart. The strong close has put the market in a position to take out the high for the year at $2.635. This is followed closely by another top at $2.684. The rally could expand greatly above this level with the next top coming in at $2.961.

The main range is the $3.227 top from the week-ending May 22, 2015 to the $1.939 bottom from the week-ending March 11, 2016. Its retracement zone at $2.583 to $2.735 is currently being tested. A long-term downtrending angle passes through this zone this week at $2.667, making it a valid upside target also.

Trader reaction to this retracement zone is likely to determine the strength and direction of the market over the near-term. Short-sellers see value so they are likely to initiate new position. Speculators are buying and they don’t care too much about value. They are more interested in maintaining the current upside momentum.

(Click to enlarge)

Based on the close on June 9, the direction of the market on Friday and next week is likely to be determined by trader reaction to the main 50% level at $2.583.

A sustained move over $2.583 will indicate the presence of buyers. This could lead to a test of the main top at $2.635, the downtrending angle at $2.667 or another main top at $2.684. The latter is the trigger point for a rally into the main Fibonacci level at $2.735.

The Fibonacci level at $2.735 is most important to the structure of the market since it is the trigger point for a strong acceleration to the upside. Taking out this level with conviction could create enough upside momentum to challenge the long-term downtrending angle at $2.947 and the main top from $2.961 from the week-ending September 18, 2015.

The primary catalyst behind the rally is a swatch of above-normal temperatures stretching from the Southwest to the Midwest over the next two weeks. This is leading to a huge surge in demand across a wide area.

On Thursday, however, the market was hit with another piece of bullish news. According to the U.S. Energy Department, natural gas stockpiles rose 65 billion cubic feet in the week-ended June 3, falling well short…




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