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Natural Gas Analysis for the Week of October 31, 2011

December Natural Gas futures posted a closing price reversal bottom on the weekly chart. This pattern is a bullish pattern that typically leads to the start of a 2 to 3 week rally to at least 50% of the last break. Although the pattern has formed, there still has to be confirmation. A trade through last week’s high at 3.9400 will confirm the pattern.

Short-sellers are likely to begin covering their positions once the bottom is verified. This is should trigger a short surge to the upside. A trade through the high from two weeks ago at 4.039 is likely to fuel an acceleration to the upside.

Based on the short-term range of 4.871 to 3.724, traders should look for a retracement into the 50 percent to 61.8 percent retracement zone at 4.298 to 4.433. Gann angle resistance drops down to 4.271 this week. This creates a resistance cluster and upside target zone at 4.271 to 4.298. With the main trend down, look for fresh selling pressure if this area is tested.

Natural Gas Price

The supply and demand fundamentals remain bearish. Last week the government reported that inventory had grown once again. Without the weather scare late in the week, this market would still be headed lower.

Factors Affecting Natural Gas This Week:

Supply and Demand – Natural gas supply continued to grow last week with no sign of a let up in production. Demand may increase a little if it gets cold, but this market needs a long, lingering cold spell to put a serious dent into the oversupply situation. In addition there remain a large number of rigs still producing. Until the overproducing stops, look for lower prices or muted rallies.

Oversold Conditions – Although no one expects any surprises, short-covering rallies can occur without warning. The large number of shorts in the market can trigger a huge rally if they can act collectively, but this is not expected to happen. Even if a short-covering rally occurs, it will only serve as an excuse to refresh short positions.

Weather – Traders should start watching the weather especially the 6- to 10-day forecasts and the 90-day forecasts. One will cover the short-term, the other the long-term. Predictions of cold spells on the East Coast will have the biggest effect on natural gas prices.

By. FX Empire

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EXXON Mobil -0.35
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