Natural Gas Price Forecast – Natural Gas Continues to See Buyers on Dips

Natural Gas Technical Analysis

The natural gas markets have rallied slightly in the early hours on Monday as we continue to dance around the $3 level. The $3 level, of course, is a large, round, psychologically significant figure, and I think that makes a certain amount of sense that we continue to see this area push in both directions. Short-term pullbacks, I do think continue to get bought into, but also keep in mind that a lot of what we have seen has been a reaction to the damage or perhaps the fact that we are slowing down production of natural gas in the southeastern part of the United States due to the storm.

But that will come back. We also have cooler temperatures coming in the next several months, and that of course will drive up demand. And if that’s going to be the case, then I think you’ve got a situation where traders will try to take advantage of that. It’s a cyclical trade that a lot of people are going to pay close attention to.

It lasts for a little while but remember most of what you’re trading here is based on futures contracts that are a couple months out. So don’t be surprised that if suddenly in January things start plummeting, and that’s because you’re starting to price in spring. Markets are forward looking, and especially in the futures pits. So, I do like the idea of buying short-term dips. I don’t like putting a lot of leverage in this market. Quite frankly, it’s too noisy.

But I certainly am not looking to short the market. I had an ETF position that I basically got out of, but I might add to it a little bit if we are back into it if we get a significant pullback, but if we don’t, that’s fine. I’ve already had about a 45% gain off of my position. This is a cyclical trade that I do every year and it’s not a big one. It’s just something that I look at the calendar and go “oh, it’s the end of summer, I need to start looking to buy natural gas for a month or two and let it rip.”

In general, I don’t advocate trading this market for retail traders. You have to understand production, wheather in the Northeastern United States, wheather in the Southeastern United States for a completely different reason, transmission flows, geopolitics, supply and demand, electricity demand, because electricity in the United States quite often is powered by natural gas, industrial demand and so on. It’s a pretty complicated market and therefore most people who trade natural gas actually specialize in it.

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