Natural gas futures inched lower early Thursday to $2.681 before turning slightly higher for the session. The early selling took out the January 5 bottom at $2.693 without much fanfare.
According to technical chart watchers, the move through the bottom changed the main trend to down. However, the market is down seven days from its last main top so it is also in technically oversold territory and ripe for a possible reversal to the upside.
The confusing technical pattern is basically saying prepare for a plunge into $2.532, or a major retracement. All we see is impending volatility, but aren’t sure about the direction at this time. Since the “trend is your friend”, we have to assume the big money is betting on the sell-off to continue.
The U.S. Energy Information Administration’s weekly storage report later today should set the tone of the market. If the draw is bigger than expected, we could see some light short-covering. However, I don’t think it’s going to be a trend-changing event.
If the draw is smaller than expected then prices could continue to retreat.
Today’s U.S. Energy Information Administration’s Weekly Storage report is expected to show a 99 bcf drawdown.
The weather forecast remained the same. Traders expect higher national demand through Friday – Saturday, but then moderate at the start of next week.
With temperatures warmer than normal over most of the country, any rally is likely to be fueled by short-covering, profit-taking and position-squaring. I don’t expect to see any major hedge fund buying.