Natural gas markets fell during the session on Thursday, and even managed to test the bottom of the previous two hammers as well. Although it didn't break down below the level, the market closed the session near the lows to suggest there would be more pressure to come. With this in mind, we can see that the trend to the down side is still very much intact.
The $2.40 level will still be supportive in our minds, and as such we could see a bit of a fight from the bulls at that level. However, the fundamentals are most certainly with the bears as the winter heating season only has roughly 4to 6 weeks left in it. The demand for natural gas should continue to be weak, and as such we will not buy the commodity.
Instead, we are looking for signs of weakness to sell in one of two forms: A rally that fails, or fresh lows. At this point in time it looks as if the fresh low is more likely than the rally, but we are willing to wait for the signal. The direction is most certainly down, but timing can save quite a bit of money in the end - so patience will continue to be the key to making our money here.
The $2.80 level above starts a zone all the way up to $3 in which we are looking for weak candles, and will not hesitate to sell from that part of the chart. A $2.25 print would also have us selling this market as well, since it would signal yet another leg down. There are several analysts on Wall Street calling for $1 natural gas prices now, and we have to concur, although it won't be overnight naturally.
We simply cannot envision a situation where buying this contract makes sense, as it can always get cheaper, and in fact already has several times. The trend is obvious, and in a market like this - only the foolhardy jump in front of it. Yes, someday things could turn around - but that isn't soon.
Natural Gas Forecast February 8, 2012, Technical Analysis
Natural Gas Pivot Points (Time Frame: 1 Day)
Name S3 S2 S1 Pivot R1 R2 R3