Natural gas markets initially tried to rally during the trading session after initially gapping higher, but then turned around to show signs of weakness.
Natural gas markets initially gapped higher to kick off the trading session on Thursday, then shot into the gap that previously has caused significant resistance at the $3.00 level. With this being the case, I believe that the market will probably pull back from here again, perhaps reaching down towards the 50 day EMA. The 50 day EMA is sitting at the $2.72 level, suggesting that the market will probably go looking towards the $2.50 level where the 200 day EMA is.
The other hand, the market breaking above that gap would be a huge deal, which could open up natural gas looking towards the $3.20 level. Nonetheless, it is difficult to imagine a situation that warrants the idea of markets going that high, especially as we head into the springtime with temperatures warming. This will drive down demand drastically and open up the cyclical selling season. The natural gas markets are oversupplied and are so from a structural standpoint, so it is very difficult to buy-and-hold this type of market.
Yes, there is the reflation trade, but I do not necessarily think that is going to be prevalent in the natural gas markets like it could be in the crude oil market. All things being equal, I expect that this is going to be a very choppy set up, but if you are diligent you can probably continue to take advantage of the overall cyclicality, mainly due to the idea of keeping your position size reasonable. Longer-term, I think that we probably go looking towards the $2.30 level, which is where we have recently bounced from on the sling well.
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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.