Natural gas markets fell most of the day on Thursday, but got a small bounce in the end to form a hammer. The candle suggests that perhaps we are getting ready to see a bounce in this market, but we simply cannot look at this as a buy signal. Instead, we see it as a warning that we need to be paying attention to the market for signs of weakness after a bounce. After all, we simply cannot buy a market that is so unequivocally broken down.
The $2 level is still calling us, and we think that if we get the bounce from here, we are likely to see resistance at the gap from the weekend, and also from the $2.60 level. Both of those would make great places to see weak daily candles in order for us to sell. The breaking below of the hammer is also a strong sell signal, and one we wouldn't hesitate to take as well. The breakdown would show renewed bearishness by the market, and almost certainly have to open the door to our $2 target at that point.
However, we actually prefer to see a bounce as it will give us a higher level from which to sell. The conviction in which the sellers have been showing is simply far too strong to consider looking at the market in any other way. While it is true that the market will eventually turn around someday, that day is far from now if you understand exactly how much natural gas is ready in the marketplace at the moment.
The United State has over 14 trillion cubic feet of it, and Canada has something along the lines of another 7 trillion, making the need for natural gas rather small in comparison. This massively imbalance would continue going forward, and as a result we think this trend still has quite a bit of legs to it still. Selling rallies and new lows has served us well for months, and we suspect it will for the foreseeable future also.
Natural Gas Forecast March 9, 2012, Technical Analysis
Natural Gas Pivot Points (Time Frame: 1 Day)
Name S3 S2 S1 Pivot R1 R2 R3