Nat Gas: Short Term Pullback Following Technical Rally

Energy Information Administration (EIA) Nat Gas Storage data for the week of 23rd Aug came in at 67 Billion Cubic Feet, versus an expected 62-65B analysts estimate. This is also higher than the previous week’s 57B gain, showing that supply is continuously higher than demand. Furthermore, this is the 20th consecutive week we’ve seen Nat Gas storage increasing, showing us that the decline from mid April 2013 is certainly no fluke. Price pushed lower sharply after the announcement, hitting a low of 3.496 following the news release. But despite the strong bearish fundamentals, bulls actually pushed back higher and recovered strongly, trading back around the pre-announcement levels by the end of US trade. Asian trade today pushed price even higher, allowing us to trade around the highs of yesterday as Europe enters into the fray.

Hourly Chart

Just like EUR/USD and AUD/USD, prices of Nat Gas appears to be more technically influenced. 3.50 round figure is a strong support, keeping bears at bay a few times this week. Hence it is not surprising to see prices rebounding higher from there, forming a new Channel in the meantime.

This implies that prices may actually experience a pullback in the immediate future, as prices is facing resistance from Channel Top, echoed by Stochastic readings which is heavily Overbought. That being said, bears need to wait for further confirmation before a move back towards Channel Bottom can be formalized. This is actually not the first time Channel Top has been tested today, with a test during early Asian hours failing to send prices lower with limited follow-through. Hence we should not automatically assume that price will be able to move lower from here. Ideally price will need to break the 3.60 soft support which will most likely be in-line with a Stoch break of 80.0, giving us stronger bearish conviction.

Daily Chart

Technicals from short-term chart shows price trading in a tight rising Channel. Price has managed to breach into the trading range of July 2013, temporary lifting the bearish pressure from the late May decline. Yesterday’s rally can be interpreted as a rebound from Channel Bottom seeking Channel Top. However, resistance around 3.68 remains, and may prevent price from hitting Channel Top and trade lower once again. As long as we are trading below 3.825, it is hard to see current rally as anything but corrective especially given the weak fundamentals shown via the inventory numbers. Furthermore, Stochastic readings on Daily Chart is extremely Overbought, and hence we could see price moving back lower eventually if fundamentals continue to remain the same in the next few weeks.

Original post