Natural Gas Price Fundamental Daily Forecast- $2.867 Area: Big Decision for Buyers and Sellers

Natural gas futures continued to fall on Tuesday, just a day after plunging over 3 percent. The price action suggests final long liquidation on the realization that the change in season from summer to fall will likely lead to a drop in demand.

November Natural Gas futures settled at $2.895, down $0.021 or -0.72%.

Although we may see a few short-covering rallies due to oversold conditions throughout the month, gains should be limited amid bearish weather forecasts. Seasonal factors may also contribute to the weakness. Gas futures have a tendency to weaken in October when mild weather reduces demand, before recovering at the start of winter, when buyers start to position themselves ahead of colder weather.

The U.S. continues to be divided diagonally by cool weather in the west and warm to very warm weather in the east. However, this is expected to neutralize demand. Overall, national demand will be moderate to low.

Forecast

On Tuesday, sellers probed the short side, taking out the last main bottom at $2.886 before hitting its low for the session at $2.880. The next target is the November 10, 2016 bottom at $2.867. A trade through this bottom will wipe out last year’s entire seasonal rally.

This is a tricky area for traders because new short-sellers don’t want to get caught in a bear trap by selling weakness. Given the limited risk, it may even be attractive to buyers. There’s a lot of space between $2.867 and last year’s low at $2.501. A new short looks tempting but only if you have a fast exit if wrong because this market could come roaring back because of oversold conditions. Selling under major main bottoms is the kind of trap hedge funds like to spring on novice traders.

Looking ahead to Thursday’s U.S. Energy Information Administration’s weekly storage report, traders expect to see a build of about 53 billion cubic feet in the week-ended September 29. That compares with a gain of 58 billion cubic feet in the preceding week, a build of 80 billion a year earlier and a five-year average rise of 91 billion cubic feet.

I don’t think traders are worried about the EIA report or the weather so the focus should be on the price action and the order flow.