NatGas: Profit-Taking Continues Despite Bullish Fundamentals

Natural gas futures are down late in the session on Friday as part of an ongoing technical correction in a move driven mostly by profit-taking. According to Natural Gas Intelligence (NGI), the price action has fueled a divergence between natural gas cash and futures as a late-season chill boosts demand.

At 17:55 GMT, June natural gas futures are trading $6.777, down $0.319 or -4.50%. The United States Natural Gas Fund ETF (UNG) is at $22.68, down $1.52 or -6.28%.

“The continued strength in the cash market stems from lingering cold weather in parts of the country that are keeping demand propped up. For example, in the Northeast alone, warmer weather was finally prevailing across most of the region at the end of the week,” according to Leticia Gonzales, an analyst at NGI.

Profit-taking Pressures Offset Bullish Fundamentals

After hitting a multi-year high on Monday, support for June natural gas futures started cracking on Tuesday, leading to a steep plunge into Friday, despite little change in the otherwise supportive backdrop.

The supportive fundamentals include low production, steady liquefied natural gas (LNG) demand. Weather demand also continues to surprise to the upside due to lingering cold shots. Furthermore, and most importantly, the current storage deficit has seen little improvement thus far in the injection season.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through $8.197 will signal a resumption of the uptrend. A move through $5.326 will change the main trend to down.

The short-term range is $5.326 to $8.197. Its 50% level at $6.762 is currently being tested. The intermediate range is $4.562 to $8.197. Its retracement zone at $6.380 to $5.951 is another potential downside target.

The combination of the two retracement zones creates a value area between $6.762 and $6.380.

Daily Swing Chart Technical Forecast

The short-term direction of the June natural gas market will be determined by trader reaction to the value zone at $6.762 to $6.380.

Buyers could start to return on a test of $6.762 to $6.380 since the main trend is up.

Strong buying could turn around the market with $7.479 the near-term upside target. If $6.380 fails as support then look for the selling to possibly extend into the intermediate Fibonacci level at $5.951.