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Natural Gas Price Fundamental Daily Forecast – Traders Waiting for Cold Weather to Fuel Short-Squeeze Rally

By:
James Hyerczyk
Published: Jan 10, 2020, 10:23 UTC

We’ve been saying all week that the time may be right for a “short-squeeze”. The support base may be indicating the selling pressure has stopped. Traders may be waiting for the catalyst to drive it higher. The return of cold weather in late January may be that catalyst.

Natural Gas

Natural gas futures are edging lower on Friday shortly before the regular session opening. The market is coming down from a failed attempt to follow-through to the upside following Thursday’s higher close. Today’s intraday high at $2.176 also fell short of the high of the week at $2.185. The market seems to be supported by shifting opinions signaling the end of the unseasonably warm temperatures. However, yesterday’s bearish government storage report may be limiting gains.

At 09:49 GMT, February natural gas futures are trading $2.151, down $0.015 or -0.69%.

Natural Gas
Daily February Natural Gas

Short-Term Weather Outlook

According to NatGasWeather for January 9-15, “A weather system and associated cold shot will exit the Northeast today with highs of 20s to 40s for locally stronger demand. The southern half of the country will remain mostly comfortable with highs of mid-50s to 70s for light demand. The West will see a mix of cool weather systems and mild breaks. One system will exit the West this weekend and track across the central US and Midwest with areas of rain and snow but fizzling as it tries to push into the East. Overall, light national demand the next 7-days.”

Mid-Term Weather Outlook

Bespoke Weather Services said, “After inconsistency in recent model runs, the latest guidance Thursday appeared to be honing in on a shift to at least somewhat colder temperatures later this month.”

“We seem to be gaining some consistency regarding at least getting a step change from the endless blowtorch regime to something that has some variability and can get back at least closer to normal,” Bespoke said. “In mid-winter it is rare that you get such a step change without a decent market reaction…but we understand some skepticism in light of how everything has turned out warmer the last several weeks.”

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas fell by 44 billion cubic feet (Bcf) for the week-ended January 3. Analysts expected a decline of 51 Bcf.

Total stocks now stand at 3.148 trillion cubic feet (Tcf), up 521 Bcf from a year ago and 74 Bcf above the five-year average, the government said.

Daily Forecast

The price action this week indicates a support base is being built. It all started with the closing price reversal bottom on January 3 at $2.083.

Supporting this idea is a comment from EBW Analytics Group as reported by Natural Gas Intelligence. Despite unseasonably mild temperatures in December and through the first part of January, technical support has “impressively displaced the bulk of downward pressure” on futures prices.

We’ve been saying all week that the time may be right for a “short-squeeze”. The support base may be indicating the selling pressure has stopped. Traders may be waiting for the catalyst to drive it higher. The return of cold weather in late January may be that catalyst.

A trade through $2.083 will mean the support-building process will have to start all over. However, a trade through $2.185 could trigger a quick move into $2.217 to $2.249.

Taking out $2.249 could trigger an acceleration to the upside with potential targets at $2.351 and $2.385.

About the Author

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.

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