Natural Gas Forecast December 20, 2011, Technical Analysis

The natural gas markets fell during the Monday session. The market fell as low as $3.05, and the downtrend continues to pressure the market lower. However, the larger picture has a consolidation from earlier this year between the $5 and $4 levels suggesting a $3 target. The move has been close enough for us, and as a result we are expecting some kind of decent bounce at this point. Also, being so close to the end of the year, there is also a high probability of traders taking profits now that we are at the end of the year.

The traders that have been short of this market have had a massively strong year, and in the overall market – profits like this are hard to give back. Because of this, there is a good chance we see this market rise as a short covering rally should be seen. Either way, the volume will be very light, and this always produces a chance of a super spike in markets like this. The entirety of all of these facts has us concerned about selling, but you cannot buy it based upon what it “might” do.

The natural gas markets still remain a “sell only” market for us as the US has over 14 Trillion Cubic Feet of proven reserves presently that aren’t even out of the ground yet. Because of this, it would take something pretty massive to have the market rise for any length of time. The markets will bounce of course, but as it has been in the past – it will more than likely continue to be so next year. However, as the professional traders all go on holiday for the end of the year, the markets will behave more and more erratically. The higher the market rises in any short covering rally should simply provide better profits being a seller next year.

With all of this in mind, we are sellers of natural gas, but at higher levels and look very forward to seeing this market bounce quite a bit as it will almost undoubtedly produce nice profits in the near future.