Natural Gas Holds Near 50-day Moving Average and Continues to Trend Higher

My reports focus on Natural Gas because it is now the largest energy source for the generation of Electricity; therefore,

My reports focus on Natural Gas because it is now the largest energy source for the generation of Electricity; therefore, Natural Gas and Electricity rates are highly correlated.

In my Jan 4th Energy Alert, I pointed out changes in NOAA’s weather forecast over the New Year weekend triggered a sharp pullback, but prices would likely remain above the last major selloff near the 200-day Moving Average, and continue to trend higher. I also pointed out even if milder weather persisted, it is possible Natural Gas would not reach the 200-day Moving Average, and instead hold near another important moving average for technical trend followers, the 50-day Moving Average. I recommend clicking on the Jan 4th Energy Alert hyperlink included in this paragraph, to fully appreciate what I am writing in today’s Energy Alert.

In my Jan 4th Energy Alert, I promised to closely monitor Natural Gas in the near-term, and if it appeared to be holding near the 50-day Moving Average in spite of negative news, I would prepare another Energy Alert, which is the reason for this report.

As you can see in the chart below, after testing the 50-day Moving Average earlier this week on very negative news, Natural Gas resumed its trend of higher prices:

Jan 5th, the Energy Information Administration (EIA) weekly storage report recorded a draw of only 49 Bcf, which was much lower than expected. In my Jan 4th Energy Alert I said analysts were expecting a draw of -68 Bcf, which relatively speaking should have been bearish enough to have justified lower prices, but the much lower than expected draw of 49 Bcf, as shown by the green circle, only pushed prices below the 50-day Moving Average for a short time earlier this week, before rallying in spite of the very negative news.

We are following a simllar scenario to what took place in November, when Natural Gas briefly traded below a key support level (200-day Moving Average), as shown by the red circle, and rallying in spite of very negative news. As I explained in my last report, moving averages do not always hold; therefore, when do they become important? Simply stated, when they hold in spite of negative news.

When a market holds key support in the face of negative news it is signalling the path of least resistence is for higher prices.Therefore, in the near-term prices will likely continue to trade higher next week, and longer-term the pattern of higher highs and higher lows remain in place.

I have been warning since my March 7th Energy Alert, the condition for a Bull market in Natural Gas were in place, and in subsequent reports, explained Bull Markets often have 3 characteristics:

  • A pattern higher highs and higher lows.
  • A pattern of remaining above key long-term moving averages.
  • A pattern of backwardation in which nearby contracts sell at a higher price than contracts further out.

All 3 characteristics remain in place; therefore, I continue to believe it is prudent to reserve rates in the forward markets.

Not every client’s risk tolerance and hedging strategy is the same, but we trust the above report will help you put into perspective the risk/reward opportunities now. I invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.


Ray Franklin
Senior Commodity Analyst

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