- Natural gas markets have gapped lower to start the trading week, with prices reaching down to the $2.00 level. This psychologically significant figure is likely to attract a lot of attention and make headlines, but the market is currently attempting to establish some type of basing pattern.
- While $2.00 is an extraordinarily low level for natural gas, it is on the lower end of what is typically seen during warmer months.
- After all, we are done with the fears of Russian gas disappearing from the European Union, and of course have seen the Freeport terminal reopened, allowing the Americans to export LNG to the EU.
The market is likely to experience a lot of noisy behavior, but if there is a short-term rally, it is a small trading opportunity, and traders should not get overly exposed to the natural gas market. At this level, it is difficult to imagine a scenario where shorting natural gas would be the best course of action. However, the 50-day EMA, which is currently dropping, could end up being a significant amount of resistance if prices reach the $2.78 level. Traders will be watching for signs of exhaustion at this level and looking to short the market.
Traders Should Be Cautious
If prices break above the $3.00 level, it will be a significant psychological level and could lead to a much bigger move. However, there needs to be some fundamental reason for the market to do so, which does not seem likely currently. The overall attitude of the market is negative, but it is also overextended to the downside. Having said that, you could have said that the market was overextended multiple times on the way down as the market plummeted over the course of the last several months.
In conclusion, natural gas markets have started the trading week with a gap lower, reaching down to the $2.00 level. While this is a psychologically significant figure, the market is attempting to establish a basing pattern. Traders should be cautious of short-term rallies and keep an eye on the 50-day EMA for resistance. Breaking above the $3.00 level could lead to a bigger move, but this seems unlikely without a fundamental reason. In general, the market is negative but ever extended to the downside, and traders should exercise caution in their trading decisions.
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