January Natural Gas
January Natural Gas futures declined to a multi-year low at $2.229 earlier in the week, but selling dried up, triggering a short-covering rally and enough upside momentum to put the market up for the week. If it can finish the week over $2.291 then a technical closing price reversal bottom will form. This will be the first sign that the buying is greater than the selling at current price levels.
(Click to enlarge)
This could prove to be difficult because the fundamentals remain bearish. Production remains strong and the commodity’s demand continues to fail to keep pace with the supply surge. Stockpiles held in underground storage in the lower 48 states reached 4 trillion cubic feet (Tcf) for the first time ever. The current storage level is up 11.2% from last year and is 5.5% above the five-year average, according to the latest data from the U.S. Energy Information Administration.
At this time of the year, weather should have the biggest influence on prices. However, so far, winter has been slow to arrive. Sure, snow blanketed much of the Midwestern and Great Lakes states over the week-end, but this wasn’t followed up by a lingering cold spell which would’ve led to increased demand.
Instead of the weather influencing the price action this week, the mechanics of the futures market seem to be exerting the biggest influence. With the December futures contract set to expire, short-sellers have been scrambling to cover their positions before expiration. This is creating an artificial bottom, but nonetheless, could prove to be an important technical formation especially since the market is technically oversold.
According to current data from the Commodity Futures Trading Commission, the number of bearish traders outnumber bullish traders by about 2 to 1. So even though supply continues to build, there is the possibility of a short-term bottom simply because investors may not want to add to current positions at this week’s current low price levels.
Technically, the main trend is down according to the weekly chart, however, a close over $2.291 on November 27 will create a potentially bullish closing price reversal bottom. Although this chart pattern may form this week, it will not mean much unless there is a follow-through rally next week.
The trend is not likely to turn up even if the chart pattern is confirmed. However, it could lead to the start of a 2 to 3 week…