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Natural gas futures are inching higher early Wednesday after dropping 8% the previous session amid a shift to a slightly warmer weather outlook. This move was a steep contrast from Monday where expectations of a cold snap sent prices soaring to a 13-year high.
At 02:19 GMT, June natural gas futures are trading $7.365, up $0.088 or +1.21%. On Tuesday, the United States Natural Gas Fund ETF (UNG) settled at $24.98, down $2.15 or -7.92%.
Rally to 13-Year High May Not Be Sustainable
Traders said Monday’s rally to a 13-year high of $8.197 may not be sustainable based on the fundamentals, according to Reuters.
On Monday, prices soared due to an unseasonable cold snap outlook for the United States at a time when the natural gas market generally shifts to moving gas into storage in preparation for the next winter. Prices fell on Tuesday after the forecasts shifted to slightly warmer.
The price action the first two days of the week clearly shows we’re in a weather market that could extend into early May.
“A milder outlook for U.S. weather will arrive in the short-term, but another cold snap could be around the corner by early May,” Isaac Hankes, senior weather research analyst at Refinitiv, said in a daily forecast note.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. A trade through $8.197 will signal a resumption of the uptrend. A move through $5.326 will change the main trend to down.
The minor trend is also up. A new minor top was formed at $8.197 for the first time since April 7. This suggests some long liquidation on Tuesday.
The minor range is $8.197 to $7.052. Its 50% level or pivot at $7.625 is resistance.
The short-term range is $5.326 to $8.197. If the selling pressure continues then look for a test of its retracement zone at $6.762 to $6.423.
Daily Swing Chart Technical Forecast
The direction of the June natural gas futures contract early Wednesday is likely to be determined by trader reaction to the minor pivot at $7.625.
Bearish Scenario
A sustained move under $7.625 will indicate the presence of sellers. If this creates enough downside momentum then look for the selling to extend into $7.052.
Taking out $7.052 will indicate the selling pressure is getting stronger. This could trigger a further break into the short-term retracement zone at $6.762 to $6.423.
Bullish Scenario
A sustained move over $7.625 will signal the return of buyers. They are going to try to generate the upside momentum needed to challenge the 13-year high at $8.197.
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