Natural Gas Has Trouble Staying Above $3.00
Most markets today are at a virtual standstill, with the biggest movers this morning being cocoa, soybeans, and sugar. All three of these commodities markets are down more than 2% today as of this writing. After a monster run-up throughout most of 2012, soybean futures are now carving out a range-trade between $16 and $18. Cocoa futures are experiencing profit taking after a very bullish August and early September. We don’t believe cocoa is starting a new bear move, we expect cocoa to be neutral to bullish in the near term. Sugar futures jumped up to 21¢ after finding a recent low at 19¢, and are now in a range between those two prices. Overall, we see all markets waiting for more definitive U.S. economic news and everyone is watching how the European sovereign debt situation unfolds.
We noticed a potential bearish head and shoulders pattern in natural gas forming (see chart below). Natural gas tried to sustain a rally above $3.00 this month, but could not do it and is now well below that level, currently trading at around $2.87. If this pattern completes successfully, we look for a downside target to be touched at around $2.35, 50¢ below where the market is at today. We see support at $2.75 and then $2.65 for this market. It is interesting to see that the affiliated markets of heating oil and crude oil both have staged bullish moves over the past two months, while natural gas has been very volatile but unable to sustain a move above $3.00.