- Natural gas collapsed by over 8% after storage data showed supplies sitting above the five-year average.
- Despite colder weather ahead, volatility and weak technicals suggest waiting for stability, with $4 and the 50-day EMA watched for potential support.
Natural gas markets plummeted by over 8% during the trading session on Thursday as we got the storage numbers during the session. And it was the first big reading of the winter at this point in time. It's worth noting that the natural gas market is sitting about 3% as far as storage is concerned above its five-year cyclical average. In other words, there is more natural gas in supply than anticipated. This does make the market sell off quite drastically. And I'm afraid that a lot of people have probably been almost wiped out.
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Now the question is, will we bounce due to colder temperatures? Because we are starting to get colder temperatures again in the next few days in the United States. If that ends up being the case, I'm going to be watching for a bounce, but without a doubt, this is one of the more dangerous markets to play. And I cannot tell you how many times natural gas has been a bit of an irritant for me as an analyst and a trader because it moves so wildly and on more fundamental analysis than technical.
Watching Key Support Levels
Below current trading, we have the 50-day EMA and the $4 level, both of which could be significant players as far as support is concerned, but I am not going to be the first one out there to buy natural gas. Quite frankly, natural gas, I believe the path forward is going to be very difficult. I would look for the right-hand side of the V, as it were, as the market will possibly have the occasional false bounce. And therefore, I want to see a day that is stable, followed by a day that is at least slightly positive with reasonable volume.
Right now, we don't have that. And as a result, it is likely to continue to be a scenario where, in the short term, at least, we are going to have to wait to see whether or not the buyers come back. This time of year is typically cyclically bullish, but I'd also point out that, quite frankly, we have a scenario where the natural gas markets will continue to be very volatile. They will be very headline-driven most time.
And at the same time, you have to keep in mind that it's difficult to short during the January contract, which we will be heading into here shortly, which, of course, is one of the coldest months of the year. That being said, you need somebody else to buy this market before you start risking your own trading capital. I'm keeping an eye on the 50-day EMA, and I'm keeping an eye on the $4 level.
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