Natural Gas Forecast August 19, 2015, Technical Analysis

Natural gas markets initially fell during the course of the day on Tuesday, breaking below the $2.70 level. With that being the case, we found enough support just below that area yet again, as we have been consolidating overall. The hammer of course is a bullish sign and therefore we feel that the market will probably bounce back towards the top of this range given enough time. A break of the top of the hammer, short-term traders may be tempted to start buying this contract, but keep in mind that the longer-term trend is most certainly to the downside. However, this is the summertime and therefore it could be an issue of liquidity at this point in time, as the market simply cannot make a significant move in one direction or the other.

Another thing that we may consider is that a long position may have to be smaller than a short position. After all, it makes more sense for short positions to work out, and you have to also keep in mind that eventually consolidation gets broken. In general, consolidation normally means continuation of the overall trend, but there are times when it is an absolute trend change. We don’t understand why natural gas would go much higher over the longer term, but you never know what happens next. With this, a certain amount of caution will be needed as this market most certainly has been very tight over the last several weeks.

We believe that the $3 level above is massively resistive, just as the $2.65 level on the bottom is massively supportive. With fact, we continue to see the market bang around this area, and therefore until we are told otherwise, by the breaking of the range, we continue to trade this range back and forth. Again though, we would take a long positions with a little bit less risk involved due to a smaller position size. Ultimately, we will break out of this range, and at that point in time we would have to follow that move as it should be significant.