Christopher Lewis
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Natural Gas

Natural gas markets initially shot higher during the trading session on Friday but continue to see the $3.00 level as a very difficult barrier to break above. That being said, it does make sense that we would struggle there, because quite frankly the large, round, psychologically significant figure will come into play, and therefore I think will continue to sell off every time we try to break above it. If we can break down below the lows of the week, I think that then opens up a potential move down to the gap underneath.

NATGAS Video 17.05.21

Remember, gaps do tend to get filled given enough time in the futures market, and I think that is the play that we have setting up here. That could send this market all the way down to the $2.70 level, which would fulfill a lot of technical analysis setups. Furthermore, I think we even go down below there to reach down towards the bottom of the overall range, maybe down to the $2.40 level. With that being the case, the market certainly has much more downside risk than up, especially as temperatures pick up in both the United States and Europe.

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There is fairly significant foreign demand for LNG, but at the end of the day the biggest driver of natural gas is going to be heating and cooling in the US, Canada, and the EU. With this, as we head into warmer temperatures will obviously see less demand in the short term. This is a cyclical trade that I take every year, and although there is more of a “reflation trade” going on, at the end of the day natural gas will be the first commodity to fall apart.

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