Natural gas markets gained again during the session on Tuesday, but pulled back in the US afternoon as the gap had been filled. The resulting candle is a shooting star, and with the severe downtrend, this should be a credible sell signal.
The bearish pressure will continue to be on this market, even with Chesapeake walking away from dry gas drilling. The abundance of natural gas should continue into the foreseeable future, and while the market cannot go down forever, the price of natural gas will be low going forward.
The gap that was filled is from the massive fall a week ago. The gap was filled, and then repelled prices in the $2.75 area. This is the first area we are looking for selling opportunities in this pair as we simply will not buy this market, but the reality is that is an oversold market. In a market like this, you simply have to expect some kind of bounce sooner or later. As long as that is the case, we are willing to sell, but only after rallies like we saw the previous session. With that in mind, we like the idea of selling the market if we manage to break the bottom of the Tuesday range.
Going forward, if this area gets broken to the upside, we would continue to look for weakness in the $3 area, as well as $3.25 and $3.50 levels. The market is a sell only one, no matter what kind of move we saw on Monday. The bearishness is a cyclical one, and one major driller stepping out of the situation while certainly bullish for price - isn't nearly enough to push the overall market higher. There is simply far too much gas and the winter has been far too mild for demand to make up the slack in the market.
We are selling a break below the bottom of the Tuesday range, and would aim for at least the lows again, and if we do not get that breakdown, we are willing to be patient and wait for the resistance areas mentioned above from which to try to sell again later.
Natural Gas Forecast January 25,, 2012, Technical Analysis
Natural Gas Pivot Points (Time Frame: 1 Day)
Name S3 S2 S1 Pivot R1 R2 R3