Natural gas futures are trading lower early Wednesday after surging to its highest level in more than a week the previous session. On Tuesday, the rally stalled after the market ran into a cluster of technical resistance at $1.785 to $1.787.
The market is getting benefit from expectations of an increase in cooling demand as weather forecasts indicate warm weather in key demand areas of the United States. However, gains are likely being limited by worries over another round of demand destruction with the economic recovery being threatened by the possibility of another round of shutdowns as global cases of COVID-19 top 10 million.
At 03:55 GMT, August natural gas futures are trading $1.722, down $0.029 or -1.68%.
Not only are traders responding primarily to weather forecasts and calls for warmer days the first half of July, but gas is cheap. After the U.S. Energy Information Administration (EIA) storage report last Thursday, prices hit a multiyear low. Futures prices settled that day at their lowest level since August 1995, according to Dow Jones MarketData.
We are in the early stages of a weather market so this should be our catalyst over the near-term. The current weather reports are solidly bullish for the first half of July. However, as always, traders want to know how long this hot/bullish U.S. pattern lasts.
Duration will be the key to the next major move. This week’s weather-related demand is not going to show up in the reports until July 9. However, traders seem confident that this may be the real deal, at least over the short-run. Weak shorts are covering and aggressive longs may be looking for a pullback.
The main trend is down according to the daily swing chart. The trend changes to up on a trade through $1.787. A move through $1.517 will signal a resumption of the downtrend.
The short-term range is $2.053 to $1.517. Its retracement zone at $1.785 to $1.848 is resistance.
The minor range is $1.517 to $1.784. Its retracement zone at $1.651 to $1.619 is support.
The main range is $2.447 to $1.517. If there is a change in trend then its retracement zone at $1.982 to $2.092 will become the primary upside target.
The first move from a major bottom is short-covering. Everyone knows that the short-sellers are controlling this market. It’s going to take a huge jump in demand to scare out the major players. However, a two-week heat scare could be enough to shake out the weaker shorts.
On the downside, the key area to watch is $1.651 to $1.619. Sellers are going to try to take out this zone in an effort to force new multi-year lows. Aggressive counter-trend buyers are going to step in on a test of this zone. They are going to try to form a potentially bullish secondary higher bottom.
Even if the trend changes to up, it’s not going to matter unless it creates enough upside momentum to take out the Fibonacci level at $1.848. This is a potential trigger point for an acceleration to the upside.
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