Natural Gas Futures Forecast December 31, 2012, Technical Analysis

The natural gas markets rose during the session on Friday as the market continues to consolidate between $3.30 level and the $3.50 handle. With this being said, it appears that we do look relatively bearish even with the positive action on Friday as we have fallen from as high as $4.00 just five weeks ago. With that being said, it looks like we’re going to continue lower eventually, but the colder weather that has entered the northeastern part of United States has put a little bit of a bid into the natural gas markets.

Looking this chart though, it appears that $3.30 is a pretty significant support area. If we can get below that level, we think that this market will march down towards the $3.00 area in a bid to continue going lower. This chart has been in a long-term downtrend for quite some time, although ironically has actually finished up for the year.

The supply and demand situation with natural gas the United States continues to widen, as you natural gas deposits are found on almost a daily basis. With more than 14,000,000,000,000 ft.³ available to drill in America alone, it’s very difficult to think that natural gas will ever be a massively bullish market. In fact, we think that for years to come this will be a “sell on the rallies” type of market. At that point time it only becomes a matter of figuring out the timing going forward.

We think that the $4.00 level will act as a bit of a ceiling in this market going forward, and at that point time should attract quite a bit of selling. If we can manage to get that I, we would jump all over a resistant candle as you can see what has happened over the last month or so. However, our base case scenario is that we are going to break down from this general vicinity once the large volume of traders comes back into the marketplace. In January we should see a pickup in volume, and as a result the sellers could come back out in full force. On a daily close below 3.30 we are more than willing to start selling again. Alternately, if we see a rally that shows some type of resistant candle between here and $4.00 that will more than likely be a signal to start selling as well.