Natural Gas Price Fundamental Daily Forecast – Short Weakness or Play for Short-Covering Rally into Resistance?

Natural gas futures closed lower on Tuesday with the market trading inside the previous day’s range. This type of pattern tends to indicate investor indecision and impending volatility. This makes sense at this time because it has to be difficult for bearish investors to short at current price levels, perhaps due to a poor risk/reward ratio. They would probably like to re-enter positions at current price levels.

On Tuesday, February natural gas futures settled at $2.697, down $0.058 or -2.11%.

Forecast

The market is posting another inside move early Wednesday, but this time it’s trading higher. At 0919 GMT, February natural gas futures are trading $2.733, up $0.036 or +1.33%.

Traders are still trying to figure out the weather pattern and its impact on future demand. If short-sellers decide to press the market, they could be looking at a move into last week’s low at $2.602.

If short-sellers decide a move into last week’s low is not worth the risk then they may try to trigger a short-covering rally by forcing out some of the weaker shorts.

The current range is $3.210 to $2.602. A meaningful short-covering rally could drive the market into its retracement zone at $2.906 to $2.978. Since the main trend is down, short-sellers are likely to re-up on a test of this zone.

Given the current uncertain weather outlook, I have to conclude that the next move in the market will be determined by whether investors want to continue to sell weakness, or wait for a rally into more favorable price territory.