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The natural gas markets fell during the session on Wednesday, but found support at the $3.40 level. This area was an area that we suggested could be supportive and a possible buying opportunity if the markets showed the right kind of candle. The fact that we printed a hammer for the day is certainly that type of candle. Because of this, we fully expect this market to continue higher, and will more than likely see it happen within the next day or two.
On a break above the highs from the Wednesday session, this is a classic technical analysis sign to buy the market. We would go ahead and do it via either the futures contract, or possibly the mini contract depending on your risk tolerance. Once we get above the $3.60 level, we believe that we will gradually work our way towards the $4.00 handle.
We also see the $4.00 handle as a minor steppingstone on the way to the ultimate target that we have set forward, the $4.50 level. Many pundits out there expect this to happen in relative quick order, and with the colder weather coming over the course of the next few months this is certainly possible.
As far as supply and demand are concerned it is difficult to tell whether or not traders are even thinking about it. Quite frankly, we have more than enough gas in the United States alone to handle everybody's energy issues, let alone America's. However, with this being said the markets don't necessarily run on simple supply and demand metrics all the time.
There is a push for power plants to use coal instead of natural gas again as this market rises in value across United States. If this starts to catch on, this will eventually sap what little demand there is for the natural gas markets, and send prices lower. Is because of this, the we think that this move to the $4.50 level is probably more of a pullback in the bigger scheme of things, rather than some type of massive trend change.