The natural gas markets fell for the week as the downtrend looks set to continue going forward. While the triangle that was broken doesn't look like much on a weekly chart, it was significant on the daily one and measures for a move down to the next handle, the $2 mark. This is a very logical and reasonable move, and considering it is with the trend - we are inclined to believe the signal.
The oversupply of natural gas is a structural issue, and there is absolutely no end in sight to it. The United State alone is known to have at least 14 trillion cubic feet of natural gas waiting to be drilled, and the storage facilities in the US are absolutely overflowing with the commodity. Canada is known to have about 10 trillion known cubic feet available as well. No matter how you slice it, the market is going to have more than enough supply coming as long as there are people willing to buy it.
In order for the market to turn around, we have so see less drilling. This is starting to happen, but we are a long way away from seeing enough of the participants leave the drilling process in order to have prices rise. There will more than likely have to be a lot of consolidation in the companies that explore and drill for natural gas, and this could take time. It is in this environment that we find ourselves selling this market over and over.
The breakdown from the triangle sent the market down to the $2.40 area, and testing the lows in the area. The breaking of this level to the downside is a very bearish signal and has us selling more natural gas as we look for that above mentioned move to $2. The buying of this contract is absolutely ill advised, and we think that perhaps even the $2 level will merely be a bump along the road. There are many analysts out there calling for $1 prices in the next year or two, and judging by the way this market has behaved, that isn't a real stretch of the imagination.
Natural Gas Forecast for the Week of March 5, 2012, Technical Analysis
Natural Gas Pivot Points (Time Frame: 1 Day)
Name S3 S2 S1 Pivot R1 R2 R3