Natural Gas Price Fundamental Daily Forecast – Early Signs of Profit-Taking, May Be Ripe for Rebound Rally

Natural gas is trading slightly higher shortly before the regular session opening on Tuesday. Without any major shift in the traditional fundamentals overnight, we have to chalk up the early strength to profit-taking and position-squaring after the most active futures contract fulfilled the objective of many short-sellers by reaching then slightly exceeding the major downside target at $2.711 on Monday.

At 1109 GMT, September Natural Gas futures are trading $2.738, up $0.008 or +0.29%.

What’s next for natural gas prices? A continued slide into the February bottom at $2.674, or a normal retracement of the sell-off from $2.992 into the 50% level at $2.850?

If production lets up and the heat returns for an extended period then we’re likely to see the retracement. We may not hit the $2.850 target, but it may be enough to slow down the selling pressure. However, steady to higher production and average temperatures are likely to continue to limit gains and may even encourage professional traders to sell weakness. Something they may be a little reluctant to do, given the pair of bottoms at $2.674 and $2.673.

If the bears are willing to sell weakness even at current levels and even after an 11 session sell-off then this will mean only one thing:  They have their sights set on the December 2017 bottom at $2.592. Hitting this level will mean the entire winter 2018 rally has been wiped out. It will also likely mean that traders are betting the current supply gap will be filled or at least greatly reduced before the start of winter.

Forecast

We’ll be watching the price action at current levels especially close this week because we may start to see some technical buying. Yesterday’s technical reversal on the daily chart may be the first indication of profit-taking, or at the very least, it could be an indication that the buying is greater than the selling at current price levels. The next indicator or a possible bottom will be a sustained move over last week’s close at $2.724.

While a weekly reversal in prices may not mean the trend is changing, it will be a strong sign that sellers may have exhausted the move and that prices may have to move higher over the near-term to attract new short-sellers.

If anything, this week’s early price action suggests this is decision time for the bears. They are going to have to decide whether to continue to press prices lower, or let up enough to fuel a meaningful short-covering rally. If you’re prone to bottom-picking or aggressive counter-trend buying then right now may be your best opportunity for a counter-trend rally.

The folks at Bespoke and NatGasWeather seem to be indicating that the market is at an inflection point. Bespoke said on Monday a break of support would be a surprise, with long-range forecasts, while not as hot as June, warm enough to keep cooling demand above average nationally.

NatGasWeather said Monday forecasts had been consistent over the past few days in showing widespread heat across large portions of the country, but with too much cooling in the Midwest and East to impress.

At current price levels, I wouldn’t be surprised by a 2 to 3 day rally and perhaps 2 to 3 weeks of consolidation if prices can close higher for the week on Friday.