The Best Trading Opportunity Today – January Natural Gas – November 25, 2015

Earlier in the week, January Natural Gas futures posted a potentially bullish closing price reversal bottom on calls for stronger demand despite concerns about record-high amounts of fuel in storage.

Technically oversold conditions and calls for a cold front to sweep through the U.S. also helped create the reversal bottom. This type of formation has temporarily stopped the price slide while putting the market in a position to breakout to the upside.

The recent price action and drive to multi-year lows indicates that investors have priced in fully stockpiles that have reached a record 4 trillion cubic feet for the first time. This suggests that the only way this market is going to rally is if there is a long, lingering cold front, or if the market runs out of sellers and weak shorts are forced to cover.

The current weather pattern indicates that a long, lingering cold front is not likely to form because of the effect of El Nino on the key demand areas in the U.S. The closing price reversal chart pattern, however, indicates that a bottom may be forming. It’s a highly speculative chart pattern given the overwhelmingly bearish fundamentals, but we’re not looking for a change in trend, or to pick the bottom. We’re looking for a bullish shift in momentum.

The first sign of strength today will be a sustained move over a steep downtrending angle at 2.320. This move could create enough upside momentum to trigger a move into 2.351.

Taking out 2.351 will confirm the closing price reversal bottom. This could spook some of the weaker shorts out of the market.

Based on the short-term range of 2.600 to 2.229, if a breakout rally is accompanied by strong buying over 2.351 then its retracement zone at 2.415 to 2.458 becomes the primary upside target. Since the expected move is based solely on the generation of momentum on a move through 2.351, a failed breakout will end the trade so there is not a lot of risk playing an upside breakout at current price levels.

Buying a counter-trend breakout carries a lot less risk then trying to pick a bottom in this bearish market by buying dips.

Watch the price action and read the order flow on a test of the angle at 2.3200. A sustained move over this angle will indicate the presence of buying with an acceleration to the upside likely if 2.351 is taken out with conviction. A failure to sustain a move over 2.351 or 2.3200 will indicate that the market is still in the strong hands of the short-sellers.

The set-up is there for a potential counter-trend breakout to the upside. Now all we need is for momentum to cooperate.