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David Becker

Natural gas prices edged higher on Tuesday, but and continue to form an additional bear flag pattern. Prices gapped down and are now retracing the breakdown which is generally seen as a continuation pattern that leads to additional lower prices. Hedge funds continued to add to short positions in futures and options according to the latest commitment of trader’s report. The Department of Energy is scheduled to release its inventory report on Thursday. Inventories are expected to decline by approximately 52 Bcf this week according to the latest forecast from survey provider Estimize.

Technical analysis

Natural gas prices edged higher continuing to form a bear flag pattern. This is a pause that refreshes lower. After the initial drop, prices rebound toward the breakdown level before continuing lower. An increase in volatility is what is expected after the market breaks down. Resistance near the breakdown level near last week’s lows near 2.27. Support is seen near the August lows at 2.12. Medium-term momentum is negative as the MACD histogram is printing in the red with a downward sloping trajectory which points to lower prices. Short term momentum is negative but is poised to turn positive as the fast stochastic could generate a crossover buy signal.

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Hedge Funds Add to Short Position

Managed money continues to add to short position in futures and options according to the latest commitment of trader’s report released for the date ending December 3, 2019. According to the CFTC, managed money increased their short position in futures and options by nearly 50K contracts while adding 5K positions to long position in futures and options. Open interest that is short futures and options outnumbers open interest that is long futures and options by nearly 3-fold, setting the market up for a potential short-squeeze.

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