Natural Gas (NGZ4), Nov. 6, 2014
General Assessment: Natural Gas traders spent much of the spring and summer accumulating large short positions after the cold weather pushed gas prices sharply higher over the winter. Prices dropped sharply after spiking in February, then consolidated a bit before declining further in July. One final push lower in October found support just above 3.60 in December gas and then staged a strong bullish reversal, breaking daily moving average and trendline resistance along the way as it quickly reversed its prior trend with new-found vigor. At this point it looks very much like an intermediate term low is in place and more gains into the winter months may well be forthcoming. Important tests for December gas may await at 4.45 and then 5.00 on the upside, while 3.90 now represents important downside support.
Preferred Strategy: Trade from the long side, as any early winter cold snap has the potential to spook traders into covering shorts. As of the November 5 close, the market looks a bit overbought on an hourly and daily basis, so perhaps a consolidation or pullback may provide better entry. The market may require a bit of work to fill in the low volume area between 4.25 and 4.45, but any fade back down towards 3.90 should be aggressively bought.
Conviction Level: Medium/High
Weekly Chart:
Daily Chart:
Hourly Chart:
Price Trend: Sideways (weekly) / Strong Upward (daily)
Momentum: Steady
Investor Positioning: Very Short
Investor Sentiment: Somewhat Bearish
Notes:
Price Trend is based on the prevailing slope of shorter and longer term moving averages and will be expressed as either “Strong Downward”, “Moderate Downward”, “Sideways”, “Moderate Upward”, or “Strong Upward”.
Momentum is based on the change in the slope of shorter and longer term moving averages, as well as measurements of the Relative Strength Index (RSI) and will be expressed as “Accelerating”, “Steady”, or “Decelerating”.
Investor Positioning is based on the CFTC Commitment of Traders reports and various other investor surveys where applicable, and will be expressed as “Very Short”, “Somewhat Short”, “Flat”, “Somewhat Long”, or “Very Long”.
Investor Sentiment is based on DSI surveys and various other investor surveys where applicable, and will be expressed as “Very Bearish”, “Somewhat Bearish”, “Neutral”, “Somewhat Bullish” or “Very Bullish”.
General Assessment, Preferred Strategy, and Conviction Level are the author’s opinion alone, shared for informational purposes only, and should never be construed as investment advice or counsel
