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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Anxious Natural Gas Traders Forget Fundamentals

February Natural Gas

The big story the past week was the nearly 25 percent surge in February Natural Gas futures prices. The move was driven by the change from extremely warm temperatures in key demand areas in December to forecasts of below normal temperatures for early January.

After settling at its lowest level in 16-years on December 17, natural gas went on a tremendous run which took prices to their highest level since November 19. The move took many traders by surprise, causing a short-squeeze in the January futures contract, which expired on December 29.

The price action on December 30 suggests the market may have posted a short-term top. If this proves to be true then we could be setting up for the all-important correction next week.

Following a prolonged move down in terms of price and time, the first rally from an extreme low is mostly short-covering. Once the market stops going down or unexpected news hits the market, short-sellers will pay anything to protect their profits. This creates a buying frenzy as sellers continue to raise offers and buyers continue to chase the market higher. This is what we may have seen the past two weeks.

(Click to enlarge)

Technically, the main trend is down according to the weekly swing chart. The main range is $3.097 to $1.802. Its 50% level at $2.450 is the primary upside target along with a downtrending angle at $2.497. Most initial rallies from important bottoms end on a test of a key…

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