Natural Weekly Price Analysis – Natural Gas Bounce After Initial Drop

Natural Gas Weekly Technical Analysis

Natural gas markets have broken through the $3 level at one point during the week, only to turn around and show signs of support. Quite frankly, we are in an area that should be rather well supported that extends down to roughly $2.70. Of course, all of the rhetoric coming out of the Middle East is providing a little bit of a floor as well.

This contrasts quite sharply with the norm this time of year, when you typically see massive demand destruction drive pricing through the floor. After all, the natural gas contract that most people are trading is the Henry Hub contract, and it is attached to the United States. Despite the fact that there is a significant number of exports, the reality is it is still mainly a US-based contract.

The US-Based Nature of the Henry Hub Contract

With that being the case, it makes quite a bit of sense that prices are somewhat low at the moment as traders are looking at spring coming and, by extension, warmer temperatures. Natural gas is used for a lot of things, but its biggest use is heating in the northeastern part of the United States.

If the market were to fall from here, the $2.70 level should be rather supported. If it rallies, the $3.50 level is probably your ceiling at the moment. That is what I am looking for: an opportunity to short this market on some type of significant bounce.

The main takeaway here is that this is a US-based contract and therefore will not behave the way many retail traders would anticipate. I remain bearish of this market but fully recognize that we are in an area that probably causes a bit of a bounce. That bounce should be an opportunity.