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Natural Gas Analysis for the Week of August 29, 2011

Natural Gas futures remained under pressure last week as traders assessed the potential impact of Hurricane Irene on supply and demand. The consensus is that after the hurricane passes, temperatures are likely to drop, leading to less demand for natural gas. Supply is not expected to be affected at all because of the storm’s location.

Technically, the market may be forming a support base, but there doesn’t appear to be a catalyst out there that would help trigger an upside breakout. The weekly chart indicates that last week produced another lower-low. At this point, it is going to take a massive closing price reversal bottom or a breakout over a main top to turn the trend higher. The latter occurrence is an extremely remote possibility.

Natural gas price movements

The first sign of strength will be the penetration and subsequent close over a pair of downtrending Gann angles at 4.05 and 4.12 this week. The good thing for bullish traders is that these angles are dropping .08 per week so eventually the market will pass over to the bullish side. Even if that occurs, a rally is likely to be thwarted at the major retracement area at 4.22 to 4.31.

While it is not being suggested to continue to press the market lower at current levels, based on the supply/demand situation, it is probably best to wait for a short-covering rally before initiating fresh short positions.

Factors Affecting Natural Gas This Week:

• Weather. Hurricane Irene is likely to bring in cooler a temperature which is likely to lead to lower demand.

• Supply/Demand. Investors should start monitoring the number of oil rigs drilling in the U.S. for natural gas. The good news is last week this figure fell by 2 to 898. The bad news is that the count must fall below 800 if production is to balance with demand.

By. FX Empire

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EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
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