Natural Gas Forecast December 3, 2012, Technical Analysis

The natural gas markets have fallen precipitously over the last several sessions, and we now look set to test the $3.50 level. Is it this area that we think the market suddenly becomes very bearish, and the price could fall precipitously again from that point.

While we have seen extraordinarily positive momentum build up for the natural gas markets, we certainly cannot help but take note of the fact that we have lost roughly $0.60 over the last week. This was highlighted earlier in the week as we got wind that natural gas inventories in the United States gained much more than anticipated. Adding to that is the fact that the weather forecast in the northeastern part of the United States, traditionally the largest consumer of natural gas, is considered to be warmer overall for the next couple of weeks. This is exactly what happened to natural gas last year – we had warmer than usual temperatures, and a much larger than expected supply.

Anytime you have this type of paradigm, the markets cannot help but fall. The question then becomes whether or not it is a temporary fall, or a much more significant one. It just so happens that on the longer time frame charts we see a trend line that coincides with this move down to $3.50, and as such a move below that level actually signifies going back underneath the longer-term trend line that has push this market down for quite some time now.

We absolutely need to see support at the $3.50 level in order for us to become bullish again, and expect that either Monday or Tuesday should produce that candle. A hammer would be ideal, and then of course we would see a bounce back towards the $4.00 level – at least in theory. However, if we get a daily close significantly below $3.50, we would have to consider this uptrend broken and expect to see continued weakness in this market. Why frankly, the selloff has been brutal and quite impressive. We think that eventually there will be some footing found, but right now there’s absolutely no sign of it.