Natural Gas Markets Taking Off

Kate Leaman
Kate Leaman

25 October 2019

  • Forward contract December
  • Colder temperatures coming to the US
  • Moving averages border price

Natural gas markets kicked off the week by gapping higher as we are rolling over into the December contract. At this point, the market looks as if it is ready to continue going higher, based on not only the gap, but the fact that the pullback has been slow and steady, as the $2.40 level has offered support as well. Ultimately, the market is going to start focusing on weather as well, which is the biggest driver of natural gas in general.

Technical analysis

The technical analysis for the market is rather positive due to the gap from the open of the week, and then the 50-day EMA starting to curl higher just below the $2.40 level. That’s an area that should continue to cause quite a bit of buying pressure, and we also have resistance above in the form of the 200-day EMA. It is currently trading at the $2.545 level, but it is likely to be tested and eventually broken as the weather starts to change in North America.

As the market is trading between the two moving averages, it suggests that we are going to continue to grind sideways in the short term, but that 200-day EMA is a clear line in the sand for the bullish. As soon as they take that out, the market should continue to go much higher. To the downside, the 50-day EMA underneath should offer support, but if it does give way to selling pressure, the next major floor is closer to the $2.20 level.

Weather

The weather in the United States is starting to turn colder, and as we start to trade the December contract, that will have a positive influence on price as demand picks up. Given enough time, we should eventually see the massive spike higher that we get every year. That can be a very brutal move and can eventually even get “limit up” moves.

All things being equal, it might be a good idea to buy short-term dips in the meantime, especially due to the weather that’s coming. As a general rule, the weather will shoot this market up in the air several weeks in a row, running until roughly the middle of January. This is the time of year that natural gas is strong, and it looks like that is happening yet again.

Building a ‘core position’ and adding to it is a great way to add to your yearly gains

The usual play is to simply buy on dips in small bits and pieces. This is a huge opportunity if you have the ability to add to your position. Building a ‘core position’ and adding to it is a great way to add to your yearly gains, which is a long-known ‘secret’ for fund managers to do in this market this time of year.

The various resistance levels above will occasionally cause a small amount of trouble, but the first signs of freezing in the US will be the unwinding of those short positions. This will have the market slicing through those levels quickly.

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