Natural Gas News: Slow Downtrend Fuels Caution, Weather Risk Lingers

Natural Gas Consolidates as Spring Shoulder Season Looms

U.S. natural gas futures are slightly better on Friday as the market continues to consolidate ahead of the start of the spring shoulder season, where demand is expected to fall on warmer weather and supply is poised to rise due to increased production.

At 16:38 GMT, April Natural Gas futures are trading $2.876, up $0.049 or +1.73%.

Gap Opening Failure Leads to Four Days of Orderly Selling

The market has been drifting lower all week after Monday’s gap opening failed to attract enough buyers to break out over the 50-day moving average. This led to a steep sell-off and the current four days of consolidation.

Trading under $3.00 with time left on the winter clock would normally be a gift for investors, but this winter season has been different with traders in selling mode since early December. With the exception of the record rally for nearby futures in late January, the market has been quite bearish. That rally was not only fueled by winter storm Fern, but it also caught hedge funds and big traders nearly 100% short according to government data.

Nonetheless, the rally topped out on January 30 and we’ve seen nothing but selling pressure since. However, with the exception of the first day of trading in February, the selling pressure has been quite orderly, perhaps proving that the major players hedged with both hands on that January/February price spike.

Bears Are Patient with $2.627 to $2.604 in Their Sights

The early January bottoms at $2.627 and $2.604 are probably on the radar as major targets, but the bears don’t appear to be in a hurry to get there with a little bit of winter left on the calendar. One never knows about the weather, especially in the high demand Northeast this year, but no one wants to get picked off like late January and forced to cover aggressively. So short-sellers are taking their time and capping gains until their objective is reached.

Resistance Cluster at $3.134 to $3.150 Caps Any Weather Rally

Technically, the trend is down according to the daily swing chart and the moving averages. The short-term trend will change to up on a trade through $3.150. Unless there’s another polar vortex, a breakout over this top will likely be fueled by weak short-covering, but I don’t see the market going much higher than the 50% level at $3.345. The same analysis goes for a breakout over the 50-day moving average at $3.134.

Let’s just call the combination of the 50-day MA and the swing top a resistance cluster. If we do get a mid-March, winter driven rally, then look for a surge into the resistance cluster. Sellers will come in initially, but if it’s overcome by aggressive speculator buying, you’ll likely get another chance to short at the $3.345 50% level.

Be Careful Shorting a Quiet Market

As we approach the end of winter with the market short, keep an eye on the trade because it’s not going to take much of a weather scare to screw up a good short trade as we get closer to $2.627 to $2.604. The bears have the edge right now, but one weather headline could flip this market fast in either direction. There’s an old saying that keeps coming to mind: “Be careful shorting a quiet market.”

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