As moderating temperature forecasts remained unconfirmed, January natural gas futures took the chance to test their surroundings. After putting in a $13.380 low in morning trade, the prompt month rebounded in the afternoon, jumping more than 40 cents in the final hour of trading to close at $14.043, up 42 cents from Friday’s close.
Sticking with the seasonal tradition, temperature continues to rule the direction of the natural gas futures market during the winter. The question now is whether or not reports of moderating temperatures in high gas demand regions will materialize. The National Weather Service (NWS) said Monday that from Dec. 25-29, the Southeast is expected to experience below normal temperatures, while the vast majority of the country will see normal to above normal temperatures.
One reason for the rally might be that the moderating temperature forecasts have not proven true yet. “Everyone was saying it was going to get warmer as this warm pocket came through, but it is not coming across any of the major population centers yet,” said a Washington, DC-based broker. “I guess that means the Plains of Missouri and Oklahoma are warm, but other places are not. I am not sure if that is true.”
He noted that the strong rally in the afternoon might have uncovered an interesting formation. “The $14.450 high back from Dec. 5 sort of looks as if it could be the left shoulder of a ‘head and shoulders’ formation,” he said. “I would be very interested to see what the market looks like 30 cents higher than here. I am very bullish up until that point. If it runs out of steam up at that $14.500 level and starts to sell off, then $13.50 becomes vitally critical because it would be the neck line of the head and shoulders formation. If we break that $13.500 level, then I think we have a good shot of seeing $12.000 or $11.500.”
Before traders pack their bags for a trip to lower price levels, the broker warned that two things have to occur first. “This rally first has to fail, and then the sell-off has to accelerate down through that $13.500 level. Neither of these have occurred yet.”
As for the day’s bottom at $13.380, the broker said the market could have found support there. “I have been saying that I thought $13.490 was a pretty decent support level and I am willing to admit that I might be wrong by 11 cents,” he said, adding that the level really comes in as a 50% retracement of the most recent move up on the January contract.
“If we don’t break that head and shoulders formation to the downside, you could also look at this through the Elliot Wave theory,” the broker added. “Wave one was the big rally up. We have been correcting back in a two wave for a little bit here and are now getting ready for the third wave. If you thought the wave one up move to $15.780 was something, wave threes are the fun ones to be in. They are long, strong and very impressive.
“I will allow for the head and shoulders pattern to develop, but we will have to fall out around $14.500 first,” he noted. “If we blow through that and look like we might revisit the old highs, then I would become a very enthusiastic buyer.”
©Copyright 2005Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |