Natural Gas Forecast December 23, 2011, Technical Analysis

Natural gas markets continued to build a base on Thursday as the $3 level did in fact offer support over the last several sessions. This makes sense as the round numbers always attract people looking to “bottom feed”, and the others that are simply taking profit after such a large move down. Add to that the fact that the attempt to break below the $3 mark happened right before the holidays and you had a perfect situation for a bounce.

The supply of natural gas far outweighs the demand. The winter in the northeastern United States has been fairly mild, and the industrial need for it will wane in the next couple of weeks. The 14 trillion cubic feet of known natural gas deposits in the United States isn’t exactly helping the bullish case either. No matter by which metric you look at the fundamental picture for this commodity, there simply is no bullish case to be made.

Looking at the charts, the 50 day exponential moving average (as seen on the chart by the yellow line) is sloped quite nicely to the downside, and this line up perpendicular to the 100 day exponential moving average represented by the purple line on the chart. This is a classic long-term downtrend, and as a result selling really is going to be the other option for this market going forward.

The gap from a few sessions ago at the $3.30 level should continue to put bearish pressure on this market, and above that we should see even more downward pressure exerted at the $3.75 and $4 marks. Until we can overtake the $4 level, it is hard to make a case for buying this market as all of the factors line up against higher prices. Because of this we are selling rallies, especially ones that show resistance and exhaustion near the above mentioned levels. The breaking below the $3 mark would be massively bearish and have us entering a new leg downward. However, we fully expect a bounce first before trying that level again.