Natural Gas Bull Uninspired

OptionsXpress
updated | Author's Website

Tuesday, February 12, 2013

Natural Gas prices remain at the low end of their trading range, as cold weather across much of the country has failed to bring fresh buying activity. Rumors of new wells popping up across the Marcellus shale area have resulted in potential buyers sitting on their hands. Supplies remain a major problem for bulls. Technically, there is some hope for the bull camp if prices are able to climb above the 3.60 mark.

Fundamentals

Colder weather has failed to inspire Natural Gas bulls, as prices remain relatively flat. The market did not even flinch in the face of winter storm Memo, suggesting many traders believe the country is more than adequately supplied. Winter is winding down in the coming weeks and, if prices fail to rally, bulls are left hoping for a hot summer. Much of the country is expected to see below average temperatures over the next week or so. This could be seen as a last stand of sorts for the bull camp, as sellers have not yet come out in full force, given the fact that we are in winter and weather conditions are unpredictable. Production rose to a record this past November, as more Natural Gas was pumped from shale wells in the Northeast. The most recent EIA data shows inventory levels 15% above the five-year average at 2.684 trillion cubic feet.

Technical Notes

Turning to the chart, we see the March Natural Gas contract bouncing off support at the 3.20 level. The 3.20 mark can be seen as an important support level,and a failure to hold here could potentially result in significant price declines. On the upside, the market could gain some positive traction if prices are able to move above the 3.60 level, which may signal a double-bottom. The measure of the double-bottom would likely put prices at resistance at the 4.00 mark. Currently, the oscillators are giving neutral readings, with some slight bearish divergence between momentum and RSI.

Rob Kurzatkowski, Senior Commodity Analyst

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