Last week October Natural Gas rebounded from a 5-month low to close off the low. Despite the comeback on Friday, the trend remains down with no sign of a change apparent over the near-term.
According to last week’s inventory report, supply continued to increase, keeping a lid on any major advance. At this time it appears that weather is going to be the key factor that could drive this market higher. Both renewed heat in the southern half of the U.S. and tropical storms in the Gulf of Mexico could underpin this market and trigger a short-covering rally.
Technically, the $4.00 level continues to play a psychological role in the market. This price may act as a pivot over the near-term as traders attempt to build a support base. Downtrending Gann angle resistance at $4.13 could be tested if a short-covering rally begins. A break though this level will be bullish and could trigger a further rally into a major 50% level at $4.24.
Factors Affecting Natural Gas This Week:
• Supply and Demand. Production is expected to remain high, thereby increasing the supply. This condition is not likely to change until after Labor Day. As long as the market continues to absorb the added supply without much of a sell-off, a case can be built that a bottom is being formed. Unless there is a surprise in the next S/D report, look for prices to hold steady.
• Weather. Excessive heat in the Southern half of the U.S. could lead to a spike in prices due to increased demand from utility companies. Hurricanes and tropical storms remain a major concern. So far they haven’t been an issue this year, but nonetheless, natural gas traders realize this condition can change quickly. One of the reasons why traders are leery about shorting the market at this time is because of the threat of a storm affecting production.
By. FX Empire
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