Nearby Natural Gas Monthly Technical Analysis for December 2015

November ended with the U.S. Energy Information Administration natural gas reports showing the current storage level at 4.009 trillion cubic feet (Tcf), up 554 Bcf (16%) from last year and 252 Bcf (6.7%) above the five-year average. This put stockpiles at a record.

January Natural Gas futures tumbled throughout the month on the bearish supply news with the market closing near its low as investors prepared for the possibility of further downside action. Oversupply conditions are so bearish that producers are forcing gas into spot market. This is putting tremendous pressure on nearby futures contracts, but could prove to be beneficial for deferred contracts.

Besides greater-than-expected injections, the unseasonably warm weather has been crushing demand. The weather has been so warm that some traders have been saying that the market is still waiting for the start of winter.

The longer-term outlook is not so friendly either. Due to the El Nino weather system, temperatures in key demand area are expected to remain below average. Although prices will move in both directions due to price spikes and fresh shorting, the main trend is expected to be down because this year’s winter is not expected to produce any long, lingering cold fronts.

Our strategy is to continue to sell short-term rallies on the daily chart because supply is expected to remain at record highs until production subsides and demand increases for prolonged periods of time.

The monthly chart indicates that a change in trend to up is highly unlikely, but the market is ripe for a possible counter-trend closing price reversal bottom due to technically oversold conditions.

Technically, the first support is the psychologically important $2.000 level. The first resistance is $2.581, followed by $2.989. The major Gann angle resistance comes in at $3.161 and $3.257. Taking out 3.659 will turn the minor trend to up. The main trend won’t turn up unless $5.337 is taken out with conviction.