Natural gas futures sank for a second day on Tuesday as speculators pared bullish positions after the weather services predicted the return to mild temperatures after this weekend’s cold spell in the eastern U.S.
January natural gas futures settled at $2.914, down $0.071 or -2.38%.
The price action this week is an example of the “cold blast” that I have been writing about. The “cold blast” tends to trigger fast, short-lived, short-covering rallies that end with a thud. What a bullish speculator wants to see are the words and phrases like “lingering cold”, “hard freeze” or “cold pressure dome” in the forecast.
Tuesday’s price action tells me that natural gas traders are looking at least 10 days out in the weather forecasts.
Over the short-run from December 5 to December 12, natgasweather.com is forecasting, “A deep and cold trough of low pressure will dominate the eastern half of the country this weekend into next week with very strong demand as lows drop into the single digits to teens across the Midwest and Northeast, with 20s and 30s into the Southeast. The West will be quite warm with high pressure overhead, but not nearly enough to offset the very cold East.”
“Overall, national demand will rapidly increase to high”. But this news was priced into the market last week. Remember, there are hedgers in the market as well as speculators.
According to the new weather models, starting around December 15, mild temperatures will return across most parts of the continental United States.
Forecast
The main trend is down according to the daily swing chart. The market will have to overcome $3.218 to turn the main trend back to up. Yesterday, the January futures contract took out its recent bottom at $2.903. If the selling pressure continues to build then the charts indicate the market has a clean shot at testing its February 26, 2016 main bottom at $2.720.
The market is also trading below a key retracement zone at $3.144 to $3.275. This is another sign of weakness.
The recent price action proves to me that spike bottoms seldom lead to sustainable rallies. Unfortunately, that’s all natural gas seems to offer. In my opinion, in order to create a sustainable rally, this market is going to have to form a major support base first.
Looking ahead to Thursday’s U.S. Energy Information Administration report, traders are expecting a draw of about 8 billion cubic feet (bcf) for the week-ending December 1.
This article was originally posted on FX Empire