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Technical signs support further breakdown in natural gas market

Having broken past key support levels to start the truncated workweek on May 30, and extending lower at midweek, natural gas is approaching "a very dangerous level," analysts said. A break to fresh lows May 31 could drive a larger sell off.

July natural gas futures tumbled 16.5 cents to settle at $3.145/MMBtu on May 30, finishing below the 200-day moving average at $3.224/MMBtu for the first time since March 20, and taking out key support at $3.200/MMBtu, analysts with Zaner Group said in a May 31 note.

The market now looks to challenge the swing low at $3.096/MMBtu, the Zaner analysts said.

"Technicals suggest further downside pressure in the short term, with the market's breach and settle below key technical support levels on May 30," Energy Management Institute principal Dominick Chirichella said.

"The next stopping point for the July contract could be as low as $3.078/MMBtu," Chirichella said.

After holding steady early, the contract extended losses May 31, trading as low as $3.061/MMBtu, and last was 7.4 cents lower at $3.071/MMBtu.

"We are approaching a very dangerous level for natural gas, and if the markets can break down to make a fresh, new low, it's likely that the market will continue to sell off from there and reach towards the $3.05/MMBtu level underneath, which would fill the longer-term gap," FX Empire analyst Christopher Lewis said.

A fall to that level would provide a good selling opportunity and a shift in the market's stubborn attitude, Lewis said.

However, if the market can bounce significantly from here, perhaps breaking above the $3.18/MMBtu level, buyers will return to continue the overall consolidation that we have seen, sending this market towards the $3.25/MMBtu level, Lewis said.

The analysts see little near-term potential for a sharp move higher although, "This market is going to continue to be very noisy," Lewis said.

Still, "Until there is a decided shift in the weather across the US it is going to be difficult for the market to move into any sort of uptrend pattern," Chirichella said.

"It seems as if the trade is rushing to factor in a slow start to the summer cooling season and that adds to the fresh technical damage on the charts," Zaner analysts said.

Additional downside signals come from the CFTC's Commitments of Traders report.

"The market is vulnerable to further liquidation as the recent COT data has the managed money traders still net long 234,025 contracts as of May 23," Zaner analysts said.

The current technical trading range boundaries remain at $3.21/MMBtu on the resistance side and $3.078/MMBtu on the support end.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power and natural gas index prices, as well as forwards and futures, visit our Commodities pages.