Natural Gas Price Fundamental Daily Forecast – Straddling Technical Retracement Zone Waiting for Steep Plunge

Natural gas prices are trading higher during Wednesday’s limited electronic trading session. Today is a U.S. holiday so the exchanges are essentially closed except for a few traders who want to take advantage of the thin-holiday trading conditions.

At 1008 GMT, August Natural Gas futures are trading $2.874, up 0.003 or +0.10%.

Despite the relatively thin volume, the price action remained true to form. So far we haven’t seen any wild price swing or outliers, which is a relief. Early in the session, the market went down, which was expected since the trend is down. Traders even showed respect to a key technical level with buyers coming in to drive prices higher for the day.

Technically, the main trend is down. It turned down on Monday when sellers took out three bottoms at $2.896, $2.891 and $2.883. It’s not going to turn up unless the buying is strong enough to take out $3.021 and $3.043. And this is not likely to occur unless production drops and the heat sticks around for about two weeks.

The main range is $2.727 to $3.043. Its technical 50% to 61.8% retracement zone is $2.885 to $2.848. Today’s intraday low is $2.845. Buyers came in on a test of this level to drive the market back to $2.894. So basically, we saw a technical bounce off of the 61.8% level at $2.848 and the 50% level at $2.885.

Traders should remember $2.885 to $2.848 as we move forward this week because this is the zone that is controlling the longer-term direction of the natural gas market.

Buying could strengthen over $2.885, but this will essentially be just a relief rally and another opportunity for the short-sellers to tighten their grip. Given the short-term range of $3.043 to $2.845, any rally into its retracement zone at $2.944 to $2.968 is likely to attract new short-sellers.

Things will get more interesting on the downside if sellers can sustain a move under $2.848. This may be the trigger point for a steep plunge. The first target is a bottom at $2.821. If this price fails then look out to the downside because $2.727 is the next target.

Fundamentally, it’s hot now, but this has been priced into the market for about 10 – 14 days. Currently, traders are pricing in a cooling system that is expected to hit mid-month. This news, combined with huge gains in production should be enough to keep the pressure on prices.