Tuesday, October 1, 2013

Is Natural Gas About to Make a Move?

Natural gas has been under pressure all during the month of September for a number of factors, including ...

  • 2013′s hurricane season has been one of the mildest in recent memory.
  • Demand and consumption  of natural gas are heavily tied to heating and cooling across the country. The summer was mild and autumn (so far) is temperate. Homes do not have much use for cooling or heating, driving down demand and driving stockpiles higher.
  • And that brings us to point #3, less demand means bigger builds in nat-gas storage. The most recent EIA Natural Gas Storage report indicated a rise of 87 bcf from the week prior.  It is still within the 5-year range, however.

Add it all up, and the United States Natural Gas Fund (UNG) has seen outflows of $21 million since the beginning of the September, compared with the inflows of over $120 million from June to August.

But I think traders have priced in too much bearishness.  Take a look at this chart of the natural gas future ...

You can see that natural gas is still banging its head on a downtrend that's been in place for months. However, bullish volume is rising and stronger than bearish volume.

The price action does not line up with a broad sell-off, which would see us revisit the August lows.

I think the strong hands are remaining tight, and keeping their hands close to their vest.  It seems to me the odds favor another retest of that overhead resistance, and a possible breakout.

We'll see how it goes.

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