Natural gas fell hard on Friday as the onslaught in this market continues. The supply is simply far too large, and the lack of real demand in the northeastern United States is simply far too much for the bulls in this market. The $3 level gave way quickly, and it seems that we are in a freefall. The market simply cannot be bought at this point in time, and we don’t see a scenario where that will change anytime soon.
The move has been very steep lately, and this does cause us to be a little hesitant to add to any shorts we have running at the moment. Instead, we prefer to sell rallies at this point as they simply haven’t produced anything more than a selling opportunity lately, and a market that falls like this one has will almost always have some kind of short covering rally sooner or later. The market has simply fallen far too hard to think anything else will actually happen.
The next obvious support area is $2.50 or so, as it is a large handle. The level will more than likely attract bottom feeders, but there is nothing to think that it will offer anything more than token support. The market is absolutely broken, and there is over 14 trillion cubic feet of natural gas in the US alone backing up the supply chain. This means that natural gas is in a cyclical bear market.
We are selling those rallies, and at larger areas of resistance such as $3 we are willing to sell larger positions. Markets don’t behave like this very often, but when they do – the bottom simply doesn’t seem to appear. The bounces could be strong, but they will be short-lived, as there simply is no way for that massive supply to be worked through. The “quarters” will continue to be possible selling points on bounces as well, such as the $2.75, $3, $3.25 levels. As long as the supply situation continues, we can never think about buying this market, but only selling it on the bounces.
Natural Gas Forecast January 16, 2012, Technical Analysis
Originally posted here
