Natural Gas Price Fundamental Daily Forecast – Strengthens Over $2.635, Weakens Under $2.523; Be Prepared for Dramatic Reversal

Nearby natural gas futures soared on Monday with seasonal buying and a hotter-trending forecast fueling a massive short-covering rally at the start of the week. According to Bespoke Weather Services (BWS), the weather outlook over the weekend “jumped solidly hotter” by showing a stronger and longer lasting upper level ridge over the eastern half of the country this week and next.

On Monday, October natural gas settled at $2.585, up $0.089 or +3.57%.

Bespoke went on to say that the upcoming conditions should result in “well above normal” cooling degree day totals east of the Rockies.

“The intensity of southern heat starts to wane this week, while increasing up into the Midwest and over into the Mid-Atlantic,” Bespoke said. “We do, climatology-wise, start picking up some minor” heating degree days further north “after mid-September, though they have little impact this early in the season.”

Natural Gas Intelligence said the forecaster said it expects prices in the spot market to be “the most important factor” for Monday’s trade.

“Our view has been that the higher wind and gradually lowering temperatures (albeit still well above normal) in the South could allow cash to weaken somewhat, with less hindrance on storage refills, but the hotter forecast makes that less certain, so we are in wait-and-see mode this morning,” Bespoke said.

Technically, the main trend is up according to the daily swing chart. The current rally has wiped out all of this summer’s highs with the market closing at its highest level since May 30.

On Monday, the rally stopped at $2.608. Taking out this level will signal a resumption of the uptrend with major targets the May 20 top at $2.770, followed by the April 10 top at $2.861 and the March 19 main top at $3.000.

The main range is $3.000 to $2.045. Its 50% to 61.8% retracement zone at $2.523 to $2.635 is likely to determine the next major move. This zone is a balance point on the chart. Simply stated, the market will strengthen on a sustained move over $2.635 and weaken on a sustained move under $2.523. Trading between the two levels will suggest trader indecision.

Daily Forecast

With the exception of the weather, the market continues to be well-supplied so it won’t go up forever. However, if the heat comes in as forecast, the winter heating season will start with smaller supply than recently seen.

Short squeezes typically last until the weakest short is taken out, then the big hedgers come in and the market heads back down.

Additionally, these types of rallies usually end ugly, which means if long, have an exit strategy in place because once it turns lower, it’s not likely to look back. Also start preparing for a dramatic closing price reversal top.