Natural gas futures are trading slightly lower early Monday as investors continue to digest the latest weather reports. The price action suggests that
Natural gas futures are trading slightly lower early Monday as investors continue to digest the latest weather reports. The price action suggests that investors may be trying to build a support base by holding the market in a range while waiting for the hot summer weather to return.
July natural gas futures are trading $3.020, down $0.019 or -0.63%.
The short-term range is $2.935 to $3.095. Its key technical retracement zone is $3.015 to $2.996. This zone is controlling the near-term direction of the market. Aggressive counter-trend buyers are going to try to hold the market over $3.015 in an effort to create the momentum needed to overtake last week’s high at $3.095.
Trend-traders are going to try to drive the market back through $2.996 in an effort to drive the market into last week’s low at $3.935.
If buyers can take out $3.095 with conviction then we could see a surge into $3.182 to $3.240. If sellers take can take out $2.935 then look for the selling to extend into the next major bottom at $2.888.
In other news, U.S. natural gas speculators cut their net long positions by the most on record as stockpiles remained unusually high after one of the warmest winters on record. Mild weather so far this spring and a slow but steady increase in production has also kept a lid on rallies.
Stockpiles are around 10 percent above normal for this time of year after utilities left excess gas in storage during one of the warmest winters on record, reducing the threat of price spikes later in the year.
U.S. production, meanwhile, averaged 71.7 billion cubic feet per day over the past week, topping the same period in 2016 (70.8 bcfd) for the first time this year.
We can look at the liquidation by speculators two ways. The first suggests we are in a bear market and prices are likely to continue to fall throughout the summer. These investors may be citing the latest weather forecasts that call for a hot summer, but with temperatures falling short of last year’s levels.
The second way to look at suggests that the weakest longs have been taken out, creating room for some of the bigger funds to build a strong position in anticipation of a summer rally. We’ll know if this is taking place if a support base begins to build.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.