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David Becker

Natural gas prices surged higher rising more than 3% on Tuesday. Hurricane Dorian remains the focus for the east coast of the United States, but natural gas traders have turned their focus to two other storms. Dorian is expected to move west and then northwest, sliding across the east coast of the United States. NOAA is now tracking tropical depression seven which is circling in the Gulf of Mexico. This could create a disruption. In addition, there is a storm coming off Africa, that has an 80% chance of becoming a tropical cyclone.

Technical Analysis

Natural gas prices surged higher after breaking through the 10-week moving average last week. Prices are poised to test trend line resistance which is created from connecting a higher in March 2019 to a high in May 2019 that comes in near 2.40.  Support is seen near the 10-day moving average at 2.23. Short term momentum is positive as the fast stochastic generated a crossover buy signal. The fast stochastic is currently printing a reading of 97, which is well above the overbought trigger level of 80 which could foreshadow a correction. Medium-term momentum is positive as the MACD (moving average convergence divergence) index recently generated a crossover buy signal. This occurs as the MACD line (the 12-week moving average minus the 26-week moving average) crosses above the MACD signal line (the 9-week moving average of the MACD line).

The emergence of multiple cyclones could keep natural gas volatility high during the balance of the season. Prices are experiencing upward momentum as a supply issue is the only item that is not priced into the value of natural gas. Prices have been capped because the amount of production has easily covered the forecasted demand. A supply event like a hurricane that shuts-in many of the Gulf of Mexico drilling rigs would be the catalyst that drives prices higher. The rise in prices would likely be a short-term event since the demand fundamentals appear to be stable and easing.

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