The natural gas markets started out the week by gapping down to continue the massive fall in price. This overly bearish signal came after a triangle had been broken to the downside as well, and this was enough to push more and more selling during the 5 sessions. However, by the end of the week, we saw a bit of a bounce in this contract that printed a hammer.
The hammer in and of itself is a bullish sign. None the less, we are not taking any bullish signals at the moment as the market is decidedly bearish, and it would take a massive bounce to change the attitude of the marketplace. The market would have to get back over the last major collapse, and that is all the way back to $4.50 – in other words double in value.
While there is simply far too much natural gas for the demand out there, we see no real reason to think that the market will continue to rise over the long run. The trend is massive, and only fools step in front of a chart like this. We also see the gap from the open this past week looks like it could fight the bulls, and then there is the triangle, which should continue to offer resistance as it was once so massive in its support of the market.
Because of this, we look at these bullish candles with suspicion, and quite frankly – this has served us well over the last year. Every time the market has bounced over this time period, selling rallies was a very profitable strategy. We don’t see any reason to think this is going to change in the near term.
The $2.50 level is the top of the gap, and we are looking for signs of weakness there. If we don’t get it, we are more than happy to wait for weakness at higher levels such as the $2.75 and $3 areas. Quite frankly, the higher this market bounces, the happier we are to sell it as it allows for greater profits. We will not buy under any circumstances.