By FXEmpire.com
The natural gas markets fell on Friday as the recent consolidation area gave way to the bears. The move is a reminder that the trend is still most certainly down, and the rally would still have a long way to go in order to change that fact.
The trend line break of the session suggests that we are going to see lower prices in the near term, and as a result we are willing to sell on a break of the lows from Friday. The $2.60 level is a support level, so we may even give the trigger price a little leeway to be under that price as well. None the less, we still feel that the market is going to go much lower, as the fundamentals in this commodity simply don’t make for a bullish market.
The supply of natural gas is enormous, and the US alone has over 14 trillion cubic feet of proven natural gas reserves. This doesn’t even include Canada, which is thought to have a fairly comparable number. This simply makes for far too much supply in the world for demand to ever make the commodity rare.
However, we are entering the hurricane season in the Gulf of Mexico in the next week or so, and this could possibly have a bullish effect on prices in short increments as refineries may have to be shut down temporarily. None the less, those pops in prices will prove to be selling opportunities as well, as this market is a long way from becoming bullish for the longer term.
The low prices in natural gas have driven a lot of industrial names out of coal and into natural gas, but the move will sometimes cause slight rallies in this market as well. In essence, there are reasons to see this market rally from time to time, but the structural issues will remain: Far too much natural gas, not nearly enough demand. At the end of the day, this is by far the most important fundamental reason for price action.
We like selling a break of the lows for Friday, and wouldn’t consider buying until this market clears the $3 hurdle. Until then, we only sell rallies and breakdowns – like the one we are starting to see here.
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Originally posted here
