Natural gas markets did rally just a bit during the trading session on Tuesday, as we have broken above the top the hammer from the Monday session, and it looks as if we are trying to do something to break out to the upside. All things being equal, this is a market that is probably more likely than not going to continue to see plenty of value hunters out there as we are in the midst of winter, and although we have seen a pretty massive pullback as of late, it’s also worth noting that the market had gained 40% before the pullback.
Now that we have gotten near the 50% Fibonacci level, I think at this point in time the market participants that are looking for value might be interested. Furthermore, we also have an uptrend line underneath, which of course a lot of people will be paying attention to. If we can break above the high of the Friday session of last week, I think that would be a very good sign that natural gas is going to continue to rally, perhaps significantly.
I still believe that sooner or later this winter we will have a spike in price that will try to be pricing in the idea that the European Union does not have enough natural gas to get through the winter, and whether or not they will be jumping into the LNG markets in America. Remember, this contract is highly sensitive to weather in the United States as well, so the fact that it’s been mild so far this winter may be part of what’s dragging this market down.
Furthermore, we also have a lot of people trying to price in the idea of a potential recession, which means a lack of electricity demand, which is quite often powered by natural gas. We have a lot of crosswinds at the moment, but that’s par for course in this market as it is highly sensitive, and very short-term focus more than anything else. Furthermore, we also have to consider the idea that a short-term cold snap could send this market straight back up in the air.
Being FXEmpire’s analyst since the early days of the website, Chris has over 20 years of experience across various markets and assets – currencies, indices, and commodities. He is a proprietary trader as well trading institutional accounts.