Since beginning trade in the new year, from Jan. 3 to Jan. 18, February natural gas futures spanned a low of $3.098/MMBtu and a high of $3.568/MMBtu, with volatility attributed largely to swings in weather, but with no substantial evidence of a bearish shift in market sentiment.
In trade on Tuesday, Jan. 17, a negative counterattack reversal pattern formed on the candlestick charts.
A break below the candle during the day on Jan. 17 might have pushed the natural gas market back down to the $3.25/MMBtu handle, FX Empire analyst Christopher Lewis said. "If we can break above the top of the range for the session, I think at that point we will probably fill the gap and reach all the way to the $3.73 level," he said.
Natural gas markets initially tried to break above the $3.50/MMBtu handle, but turned around and broke down rather significantly. Finding a $3.354/MMBtu low, the contract closed the Jan. 17 session just 0.7 cent lower on the day at $3.412/MMBtu.
"From a technical perspective, the Feb contract ended Tuesday's trading session back in the next lower technical trading range. The spot contract is now near the upper or resistance end of the new trading range," Energy Management Institute principal Dominick Chirichella said.
Chirichella said the February natural gas contract's current boundaries are now around $3.420/MMBtu on the resistance side and $3.28/MMBtu on the support side.
The upward trend began in early January after the market tested and held at support on the continuation chart from the 100-day moving average on Jan. 9 and Jan. 10. That moving average is currently near $3.12/MMBtu.
Now, pressure is coming from the 20-day moving average on the continuation chart near $3.450/MMBtu.
Losses extended overnight and into Jan. 18 trade with the contract settling 11.0 cents lower at $3.302/MMBtu.
Volatility is expected to continue, but there is little evidence of a shift from a bullish market sentiment to a bearish one despite the market's inability to sustain the upside.
Looking at the Commodity Futures Trading Commission's Commitments of Traders report released Jan. 10, Zeits Energy Analytics analyst Richard Zeits said, "It appears that no significant change in investors' sentiment occurred during the volatile week."
Zeits said that while aggregate short position in Henry Hub financial futures-plus-options did increase week on week by 91 Bcf, the increase was moderate compared to the "giant" 1.4 Tcf drop during the preceding months.
On the long side, Zeits noted Money Mangers' aggregate long positions in Henry Hub financial futures-plus options decreased by 119 Bcf. "This is a move in the same direction, reducing exposure in financial natural gas," he said. "However, similar to the change on the short side, the reduction in exposure is moderate in context of historical volatility."
He said, "The stability in traders' positioning may in part explain why natural gas prices bounced back quickly."
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