Natural gas markets fell on Tuesday as the bears stepped back into the market again. The rally recently has been rather strong, but stalled out after just a couple of sessions. If you watched the video for natural gas that we put out yesterday, you know that we were watching this recent consolidation for signals as to which way the market was about to go.
You also would know that the hope was a break to the downside, and this is exactly what we got as the market continues to sell off. The trend is just so strong to the downside; we were never going to be overly comfortable going counter trend and buying. The winter has been much warmer than usual in the northeastern United States which drives down the demand for natural gas in a large way. In fact, it is the end of January and 60 degrees Fahrenheit or 16 degrees Celsius in many parts of the region, a far cry from cold. For most of the month, it has only been a few degrees cooler.
The supply in this market is simply far too much for the demand to ever come close to consuming. The market for natural gas is going to be bearish for quite some time, and the fact that some large drillers are stepping away from production seems to be only a minor blip on the radar. In fact, if you trade stocks - you can expect a lot of consolidation in the industry as prices simply cannot support so many companies.
The large red candle at the end of the Tuesday session just puts an exclamation point on the bearishness of this market, and a break below the lows for the day is yet another sell signal if you missed the breakdown earlier on Tuesday. There isn't a scenario where we can imagine buying this market, and as a result are selling rallies, and the above mentioned breakdown below the lows of the session. Until we see prices well above $4, we really aren't interested in buying.
Natural Gas Forecast February 1, 2012, Technical Analysis
Natural Gas Pivot Points (Time Frame: 1 Day)
Name S3 S2 S1 Pivot R1 R2 R3