Natural Gas Price Rallies on October Rollover as $3 Resistance Looms

Natural Gas Technical Analysis

The natural gas market has rolled over to show signs of strength for the first day of the October contract, and that does make a certain amount of sense. As we start to roll over into October, we start to think about the idea that perhaps demand will pick up in the United States, certainly by the back half of October.

Typically, in the Northeast, we’re normally starting our heating around that time. It’s not every day, and it’s not all day, but it does start to drive up demand a little bit. And that’s what the market’s trying to sniff out here.

This is a very seasonal market, and I do trade it seasonally, so as we roll into the October contract, I start to think about these things. That doesn’t mean that I’m necessarily massively bullish, and that’s not the case at all, but I become more neutral because we will have some use.

Seasonality and Technical Outlook

Keep in mind that storage is absolutely bursting at the seams right now in the United States, so that is not helping the situation either. Ultimately, I look at the $3 level as a bit of a resistance barrier, and if we could break above there, it would be a very positive sign. But I also think that it’s very realistic to think that sellers might step in in that area. I am starting to shift from very bearish to more neutral, more playing the support and resistance areas.

During the summer time, I like to fade rallies that show signs of exhaustion. I don’t buy at all; I just let it run out of energy to the upside. In the winter, it’s pretty much the inverse of that. And right now, we’re heading into that time of year where the bears aren’t in complete control, but the bulls aren’t either.

So range-bound, probably a little bit higher on average this time of year than maybe 2 months ago, but really what we need for natural gas to take off is 1 of 2 things this year, I suspect. 1 will be colder temperatures—that’s every year in the United States—and the second 1 might be whether or not Europe ends up having to import a lot of liquefied natural gas from the United States, because that would change a lot. That would, more likely than not, drive up price as supply gets drawn down, and that is a question that’s actually being asked in the Persian Gulf at the moment.

So we’ll see, but we are starting to head into the bullish season, and the first day of October certainly looks like it’s trying to state that for this contract.

If you’d like to know more about how to trade natural gas, please visit our educational area.