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Natural Gas Analysis for the Week of September 12, 2011

For the first time in seven weeks, natural gas futures failed to make a lower-low on the weekly charts. The inside week that was produced may be a sign of a shift in sentiment to the upside or at the least impending volatility.

Although the November futures contract closed only slightly better, it appears to have withstood an onslaught of very bearish trading conditions. In addition to this, for the second consecutive week, it identified the key Gann angle which when finally taken out, is likely to lead to a strong breakout rally to the upside.

The first sign of strength will be the penetration of a pair of Gann angles from the 5.106 and 4.697 tops. This week’s resistance drops in at 3.986 and 4.057 respectively. Once these resistance points are cleared, the next upside objective will be the 50 percent to 61.8 percent retracement zone of the 4.697 to 3.903 range at 4.300 and 4.394.

Given the way the market reacted to last week’s bearish overtones in the financial markets, it appears that the seasonal low may be in. This could mean the market is saturated with shorts and may be poised for a solid 2 to 3 week short-covering rally.

Factors Affecting Natural Gas This Week:

• Weather. It’s still hurricane season and traders are now tracking tropical storm Maria. Even though production in the Gulf of Mexico accounts for only about 7% of U.S. output, short traders seem to react each time a storm approaches the Gulf. The trick is not to get caught short too big if a storm hits.

• Supply and Demand. Supply went up again last week, but the increase was only slightly better than estimates. Production is still increasing but maybe the market is ripe for a surprise in demand. Seasonal factors may begin to play a part.

• Technical Factors. Watch for a potential breakout above a pair of Gann angles at 3.986 and 4.057. Stops are likely to get hit above these levels, triggering the start of a strong short-covering rally.

By. FX Empire

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