Natural gas markets went back and forth during the session on Wednesday as we hover above the crucial $2.30 level. At this point, that large, round, psychologically significant figure is of course something that we should pay attention to, because this market tends to follow $0.10 increments. The market simply goes back and forth between these $0.10 increments over the longer-term, showing signs of a very tight structure in this market.
Looking at the chart, the fact that we couldn’t find enough interest in holding the gains suggests that we are ready to break down a bit, perhaps reaching to the downside going forward. At this point, I think that if we can break down below the bottom of the range for the day, it’s very likely that we could go down to the $2.25 level, possibly even the $2.20 level after that. I believe that short-term rallies continue to find a lot of trouble, and therefore it makes no sense to try to hang onto any type of long position. I think we are starting to come to grips with the fact that the tropical storm in the Gulf of Mexico has done no major damage to supply and distribution, and therefore it’s likely that natural gas markets continue to struggle.
Looking at this chart, I think that the 50 day EMA above is going to continue to offer a bit of resistance, perhaps coinciding quite nicely towards the $2.40 level. The $2.50 level is the top of that resistance, and therefore I think that it is only a matter time before we get sellers coming in to take advantage of what has been a very negative trend. Keep in mind that the market is likely to continue to focus on the fact that we have an oversupply of natural gas out there, and as we are in the middle of summer, although there may be needs out there for cooling, the reality is that the strongest time of year is going to be during the colder months in the United States and Europe, which we are months away from. At this point, I continue to fade rallies and I do think that the market will eventually make a move towards the $2.00 level at this rate. Rallies continue to be selling opportunities and I don’t look to this market as a buying opportunity until we get later in the year.
