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James Hyerczyk

Natural gas futures are trading slightly lower early Wednesday, but remain within striking distance of a pair of minor tops at $1.979 and $1.986 as well as a key technical retracement zone that could determine whether the market spikes to the upside, or retests recent lows.

The market gapped higher on Tuesday after a long-holiday weekend after weather models showed cold potentially returning late-February/early March. The rally stalled, however, after cash prices tanked as traders bet the potential cold blast will be short-lived, or more of a cold snap.

At 11:22 GMT, April natural gas is trading $1.959, down $0.012 or -0.61%.

Natural Gas Intelligence (NGI) reported that NatGasWeather said both the Global Forecast Systems (GFS) and European models lost around 10 heating degree days (HDD) or more Thursday night, but the midday GFS flipped back colder by gaining back those losses and more. The European model also added back demand, gaining 7 HDDs in Friday afternoon’s run.

Both models still show a rather mild break across most of the United States February 22-26, but then indicate cold making a return push into the country February 28-March 1, the forecaster said. “If this were to hold through the weekend break, the back end would be cold weighted.

“Essentially, both the GFS and European models are very similar on the overall pattern into March 1. They both added some demand back into the latest data, but that milder break February 23-26 stands out. It might be overlooked as long as the February 28-March 1 period proves to show cold pushing back into the northern United States after the weekend break.”

Daily April Natural Gas

Daily Forecast

The main trend is down according to the daily swing chart, however, momentum has shifted to the upside. A trade through $2.196 will change the main trend to up. A move through $1.788 will signal a resumption of the downtrend.

The minor trend is up. The trend turned up when buyers took out the last minor top at $1.894. This move shifted momentum to the upside.

The main range is $2.196 to $1.788. Its retracement zone at $1.992 to $2.040 is the primary upside target. Look for sellers on the first test of the zone, however, watch for an acceleration to the upside if buyers take out $2.040 with conviction. The move could trigger a huge short-covering rally due to the size of the current short positions in the market.

A failure at $1.992 to $2.049 will likely bring in the sellers. This could lead to a test of the 50% level at $1.903 or even fill in the gap down to $1.872.

Early in the session, potential resistance is layered at $1.974, $1.979, $1.986 and $1.992.

Fundamentally, traders are watching the forecast for February 23-26. Gains will be limited if the current forecast for warmer temps stands. However, look for a strong rally if the forecasters change their minds and put cold back into the market during this time period.

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