Natural gas traders could face a major decision this week with the prospect of summer demand growth driving the bullish traders and bearish storage builds attracting the interest of the bearish traders.
Bespoke Weather Services on Friday said the weather picture has turned “increasingly bullish,” with its forecast for “a lot more heat in the back half of May than what we were looking at in the forecasts a week ago.”
It also added, however, a “bearish fundamental picture” has weighed on prices. The EIA report for the week-ending May 17 “did confirm some tightening balance, but they still remain too loose to allow for prices to continue moving up” and taking out resistance levels.
Last week, July natural gas settled at $2.664, up $0.009 or +0.34%.
Weekly Technical Analysis
The main trend is down according to the weekly swing chart, however, momentum has been trending higher since the formation of the closing price reversal bottom at $2.534 during the week-ending April 26.
A trade through $2.534 will negate the closing price reversal bottom and signal a resumption of the downtrend.
The main trend will change to up on a trade through $2.990, but this is highly unlikely to occur this week. However, there is room to the upside for a normal correction into a short-term retracement zone.
The main range is $2.990 to $2.534. Its retracement zone at $2.762 to $2.816 is the primary upside target. Since the main trend is down, sellers are likely to come in on a test of this area.
The short-term range is $2.534 to $2.700. Its retracement zone at $2.617 to $2.597 is the first downside target. If this market is going to continue its rally then aggressive counter-trend buyers are going to have to come in on a test of this area.
Weekly Technical Forecast
Based on last week’s price action and the close at $2.664, the direction of the July natural gas market this week is likely to be determined by trader reaction to the uptrending Gann angle at $2.694.
A sustained move over $2.694 will indicate the presence of buyers. Taking out $2.700 will indicate the buying is getting stronger. If this move creates enough upside momentum then look for the buying to possibly extend into the short-term 50% level at $2.762. Look for sellers on the first test of this level.
Overcoming $2.762 could spike the market into a downtrending Gann angle at $2.810, followed by the Fibonacci level at $2.816.
A failure to overcome $2.762 will signal the presence of sellers. This could trigger a pullback into a cluster of potential support levels at $2.617 and $2.614. Aggressive counter-trend buyers could come in on a test of this area.
If $2.614 fails then look for the selling to possibly extend into the short-term Fibonacci level at $2.597 and an uptrending Gann angle at $2.574. The latter is the last potential support angle before the $2.534 main bottom.