Natural Gas News: Technical Indicators Hint at Overbought Conditions

Natural Gas Market Faces Potential Correction

U.S. natural gas prices are trading lower on Tuesday, reacting technically to the 200-day moving average test. This price action indicates a round of profit-taking following a significant month-long rally. A lower close today could form a bearish closing price reversal top, potentially leading to a 2 to 3-day correction, although the overall trend remains upward.

At 13:42 GMT, Natural Gas futures are trading $2.700, down $0.051 or -1.85%.

Natural Gas Rally Faces Potential Near-Term Consolidation

Natural gas futures have pulled back in early trading on Tuesday, raising questions about the sustainability of the recent rally that has dominated trading this month. Despite a strong opening to the week, overnight data showing cooler trends for the 7-15 day forecast period may contribute to the current selloff. Over the past three weeks, natural gas prices have surged by over 80¢. Continued rallying would depend on major market players anticipating tighter supplies as surpluses shrink in the coming months.

Weather Forecast Highlights Regional Variability

According to NatGasWeather for May 21-27, Texas will experience highs in the 90s to 100s, cooling into the 80s and 90s midweek before heating up again over the weekend. The southern third of the U.S. will remain warm to hot, with highs in the 80s and 90s, locally reaching the 100s in the Southwest. The Ohio Valley and East are expected to warm into the upper 80s to low 90s on Tuesday and Wednesday, with the northern two-thirds of the U.S. remaining comfortable from Thursday through next week.

Technical Indicators Suggest Overbought Conditions

June natural gas futures have rallied over 40% in May, pushing technical indicators into overbought territory. This significant rise over the past week suggests that the market may be nearing the end of a short-covering fueled rally. Traders should watch for signs of a potential consolidation or correction in the near term.

Market Forecast: Bearish Near-Term Outlook

Given the recent price action and overbought technical indicators, a near-term correction in natural gas prices is likely. Profit-taking and cooler weather forecasts are contributing to the current pullback. However, the longer-term trend remains bullish, driven by expectations of tighter supplies. Traders should prepare for potential volatility and a short-term bearish outlook while keeping an eye on fundamental factors that could influence the market’s direction.

Technical Analysis

Natural gas prices are edging lower on Tuesday after testing the 200-day moving average at $2.765. This is the long-term trend indicator. Trader reaction to this moving average is likely to set the near-term tone.

Acting as a potential pivot, buyers may be eyeing an upside breakout into $2.885, while bearish sellers will be watching for increased pressure throughout the session with the next target $2.451.