- During Tuesday's trading session, natural gas markets showed signs of life, pulling back slightly before heading toward the 50-Day EMA.
- This area has been significant multiple times and sits below the crucial $2.50 level.
- A break above this level could see the market move toward the $3.00 level, the top of the recent consolidation area.
However, the market has exhibited back-and-forth behavior and is currently in a seasonally weak time of year, making it easier to short the market than buy it. Signs of exhaustion will likely be used to initiate selling, with the $2.00 level as a crucial support area. A break below this level could see the market drift to the $1.80 level, the bottom of the support zone. Anything below $1.80 would be very negative for the market, but it is unlikely that short sellers could overcome this level.
The demand for natural gas is expected to weaken in the summer due to warmer temperatures. While the occasional heat spike could increase prices, this is only temporary. Furthermore, if the global economy slows, the demand for crude oil for industrial power will continue to drift lower. However, the Europeans will have to refill their natural gas stocks by the end of the summer, meaning they will need to import from various places around the world, putting upward pressure on the Henry Hub contract, the most widely traded natural gas market.
The Market Hasn't Bottomed Out
At the end of the day, the natural gas market has exhibited back-and-forth behavior and is currently in a seasonally weak time of year, making it easier to short the market than buy it. Signs of exhaustion will likely initiate selling, with the $2.00 level as a crucial support area. A break below this level could see the market drift to the $1.80 level, the bottom of the support zone. While the demand for natural gas is expected to weaken in the summer due to warmer temperatures, the need for refilling natural gas stocks by the end of the summer should put upward pressure on the Henry Hub contract. Ultimately, investors should closely monitor and cautiously approach the market's behavior.
Potential signal: Natural Gas hasn’t bottomed out completely. The seasonality is working against it. We will have a great longer-term trade later this year. However, in the short term, selling is possible near the $2.34 level with a stop loss at the $2.41 level, and a target is at the $2.02 level.
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