Bearish reversal in nat gas not all its cracked up to be

$4.50 level is key

The weekly continuation chart of CME Group Henry Hub Natural Gas Futures(NYMEX:NGJ14) offers a longer-term perspective of the volatility which accompanied the recent expiration of the March 2014 contract. At first glance, the expiration led to a huge bearish reversal and the destruction of the multi-month bull trend. First, there was a crucial failure to breach the psychologically important $6.50 level.  More importantly, that failure was accompanied by a dramatic bearish key reversal on both daily as well as the weekly rolling front-month chart (see chart below).

Nevertheless, the weekly key reversal occurred on anemic volume, suggesting a lack of conviction by longer-term players.  Also, the $4.50 level acted as support throughout the decline (so far).  This $4.50 level served as important resistance throughout 2013 and was therefore a logical spot for longer-term bulls to re-establish bullish positions.

While it remains extremely doubtful that we will retest the $6.50 resistance with spring (and it’s seasonal weakness) looming in our immediate future, it could be that the market established both highs ($6.50 resistance) and lows ($4.50 support) during the Feb. 24 weekly key reversal.  That stated, if we can break $4.50, the $3.50 support level which held throughout 2013 should serve as longer-term support.

 

About the Author


Richard Weissman is a Senior Associate with the Energy Management Institute (www.emi.org) and author of Trade Like a Casino: Find Your Edge, Manage Risk and Win Like the House.

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