Thenatural gas market seems to be questioning whether a new up leg is underwayafter August futures failed several times to breach key resistance near$3.00/MMBtu. The short-term trend remains negative but the market is tradingwith a bullish slant that could shift higher with a break above resistancearound $2.80/MMBtu.
Naturalgas initially tried to rally during the course of the session July 12, withAugust futures trading early to a fresh low at $2.687/MMBtu before rising to a$2.751/MMBtu high, and turning back to close the session 3.2 cents higher at$2.734/MMBtu.
"Thebulls will suggest that the rejection of a fresh new low and positive closeyesterday serves notice that additional downside profits might be difficult toachieve," Zaner analysts said in a note.
Otherssuggested that the pattern resembled a shooting star and could push the marketin either direction.
"Ifwe can break down below the bottom of the shooting star, we will more thanlikely try to reach down to the $2.60 level. On the other hand, if we breakabove the top of the shooting star for the session on Tuesday, that would be avery bullish sign and should send this market going much higher as it wouldshow a break out to the upside," FX Empire analyst Christopher Lewis said.
Thespot Nymex nat gas contract, however, will have to move back above the$2.80/MMBtu level (new range resistance area) for market participants to beconvinced that the new up leg is underway, said Energy Management Instituteprincipal Dominick Chirichella.
"Froma technical perspective the spot August contract remains in the middle of thelower trading range after Monday's strong round of selling," Chirichellasaid.
Inearly Asian trading Wednesday, July 13, Chirichella noted the spot contracttrading either side of unchanged. The contract turned positive ahead of theU.S. market open, but pulled back to trade on either side of unchanged onceagain with the market bound by $2.80/MMBtu resistance and $2.65/MMBtu support.
Naturalgas futures have generally been in an uptrend since late May when temperatureforecasts began to show an extended period of summer heat.The bullish fundamentals have been complimented by favorable technicaldevelopments in which trade on June 6 broke out above the April 25 high at$2.495/MMBtu and trade on June 20 advanced decisively above key resistance fromthe high on Jan. 11 at $2.650/MMBtu.
Thehigh at $2.650/MMBtu should offer key support to any near-term weakness, butsome traders are looking for a short dip below that level to re-enter themarket from the long side.
"Iwould look for any kind of correction to $2.50 or $2.60 to be a buy," JohnTurner, senior trader at Heritage West Financial, told S&P Global. "Istill think we can reach $3.10. If you get 30 days of just exorbitant heat, weshould be able to get to $3.10."
Onthe continuation chart, key support will come from the high on Jan. 8 at$2.495/MMBtu, but it's questionable as to whether the market can fall that far.
Stochasticssuggest momentum is negative as the moving average convergence divergence orMACD index prints in the red after recently generating a sell signal. Therelative strength index or RSI stabilized with the next level of support on theRSI at 38, FX Empire analyst David Becker said.
Zaneranalysts concur. "Declining momentum studies in the neutral zone will tendto reinforce lower price action," the Zaner analysts said. "Themarket's close below the 9-day moving average is an indication the short-termtrend remains negative. The upside daily closing price reversal gives themarket a bullish tilt. It is a slightly negative indicator that the close waslower than the pivot swing number."
Thedownside target is now at $2.655/MMBtu. The next area of resistance is around$2.771/MMBtu and $2.792/MMBtu.
Market prices and includedindustry data are current as of the time of publication and are subject tochange. For more detailed market data, including SNL powerand naturalgas index prices, as well as forwardsand futures,visit SNL Energy's Commodities Pages.