After what I consider a monster rally, natural gas (NYMEX:NGH14) has pulled back to the first area of support according to my technicals.
Fundamentally, it’s damn cold here in Chicago. I have lived here since January 2005 and this is as cold as I can remember. Not just a sub-zero day here or a sub-zero day there, but sub-zero temperatures for long periods of time. Today for example, the temperature at 5 a. m. central time when I woke up was -11 degrees. Now that is forgetting the "wind-chill" temp or what they call the "feels-like" temp, it's just the temperature. The high for the day today was supposed to be 5 degrees above! They got snow in Atlanta and in Louisiana yesterday for goodness sake!
In fact in Atlanta, there have been thousands of accidents and children had to spend the night in school because it was too unsafe to drive home. Here in Chicago a few inches of snow or even a foot of snow is no big deal. We have the plows and the salt trucks. Not so much in Atlanta, they are just not prepared for this type of thing. "Why", you ask? Because it DOESNT SNOW IN ATLANTA!! Well it did and it shut down the city.
The "Polar Vortex" and the "Yankee Clipper" are two phrases that if I never hear again in my life I will be just fine. Records are being broke right and left for low temperatures. In fact, the other day there was a pile up on an interstate I-94 in Indiana of more than 30 vehicles with a large majority of them being semi-trucks.
It's been freezing cold with sub-zero or just above zero from the Dakota's to Iowa to Nebraska to Indiana to Ohio and more for long periods of time on more than one occasion this winter season. Last year there was so much natural gas they claimed they couldn't store it all! This year the demand is so high, they don't have enough. Who knows, maybe there is an opportunity here!
Technically, on this March natural gas futures chart I have applied my favorite technical indicators like the 9-, 20-, and the 50-day simple moving average (SMA's), the Bollinger Bands (BB's, light blue shaded area), volume and candlesticks (green and red bars where each bar represents a day).
Technically, my favorite indicators show me that the NYMEX natural gas futures market is in what I refer to as in a "super-trend" up. This begins to occur when the 9-day simple moving average (SMA, red line) crosses up and over the 20-day simple moving average (SMA, green line) and this happened on Jan. 23 according to the daily chart below. The next important factor in forming a "super-trend" up is that both indicators have to point upward on fairly sharp angles and they did almost immediately after the cross. Finally, the market has to trade above the 9-day SMA, and then I feel comfortable in calling the market in a "super-trend" up. All of those items are in place here and who knows how long this trend could stay higher, but my first boss in this business always told me, "the trend is your friend....”
It is also important to note I believe that the market has pulled back well off of the highs for the move. In fact it has pulled back to what I would consider the first area of support, the 9-day SMA (red line). Now if it is real support and the "SUPER-TREND" is to stay in effect, then the market should hold here and go on to make new highs. If not, then I look for the market to stay in an upward trend, pull back to the 20-day SMA (green line) and hold there. Stay tuned and let's see how my favorite technicals work out.
About the Author
Matt McKinney is a full-service options broker at Zaner Group both buying and selling energies, metals, grains, softs, currencies and the 30-year bond market. My strategies include time frames of 45-120 days with the ability to liquidate at any time. I can be reached at mmckinney@zaner.com.
Whether you're a novice trader who wants to participate in options on futures or an experienced trader, you can also check out my blog at http://www.mmckinneyfutures.com/.
Futures and options trading involves substantial risk and is not for everyone.