Natural Gas Forecast December 12, 2012, Technical Analysis

The natural gas markets had a very negative session on Tuesday as the pressure to the downside continues. The market closed the very low of the session, which of course is a very negative sign. However, we are currently sitting on top of a fairly massive support area, and now we have to be able to differentiate between whether we are simply “filling the gap” from several weeks ago, or are we getting ready to blow through that same gap.

Looking this chart, it makes a fairly straightforward trade when you have a situation like this. If we can manage to break down below the $3.35 level, at that point in time there would be no real doubt as to whether or not support had just been violated. At that point time, I feel that this market will attempt to reach the previous gap which is just under the $3.00 level.

However, from my years of market experience I believe that this extremely negative candle suggests that the more likely of the two outcomes is that we will see a breakout at this point in time. The weather in the northeastern part of United States remains warm, and as a result the demand for natural gas will continue to be fairly week considering that it is the middle of December.

Remember, last winter in the northeastern part of the United States was extremely mild as well, so there wasn’t the usual burden off of natural gas supplies that we would get during the months of December, January, and February. Because of this, we have a glut of natural gas to begin with, and then of course it doesn’t help that the Americans are finding more and more natural gas every day.

If we get a breakdown, it does look like $3.00 level will be tested. Having said that, the gap that is just below that area extends all the way down to the $2.90 level, and we feel that any shorting opportunity should reach at least the top of that, if not farther.