The natural gas markets fell on Friday as the traders continued to sell the overabundant resource off. The $3 level has given way a bit, but the fact that the market is sitting at $2.99 doesn’t exactly get us ready to short right way as it is still within a margin of error so to speak from $3. The market however, looks very bearish overall, so we know that selling it the only way to go going forward.
The supply for the natural gas markets is over 14 trillion cubic feet in the United States alone. Because of this, it is very difficult to imagine a situation where the market gets a sudden bid up. To put things into perspective, that amount of gas is enough to power the United States for well over 300 years, and this supply is only being added to as the Americans find more and more natural gas almost every day. The supply is seemingly endless, and because of this, the natural gas prices will have to keep falling. Adding to this downward pressure is the fact that the northeastern United States is having a warmer than usual winter, driving demand down.
We actually prefer selling the bounces, as the trend should continue going forward. The market is a bit oversold, and a few bottom feeders could find their way into the market at the $3 area, which would only serve our interests quite well. We see the $3.25 level as the first serious resistance area, and the $3.50 level is next. We are hoping to see a move up to one of those areas followed by a weak looking candle. Because of this, the rallies should only provide us more value on the sell side.
The year has been a particularly rough one for the market, and the downward pressure looks set to continue right out of the gate for 2012. However, there could be a small pop in the price as many money managers will allocate new trades at the start of the year. There are value investors that are willing to step into situations like this, and lower volumes in the beginning of the year could exaggerate any buying. Again though, we are waiting to sell from those levels.