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February 22, 2012 -- Updated January 22, 2012 23:50 HKT

Natural Gas Outlook 2012

 

A  fundamental look at Nat Gas
Last week Nat Gas futures were hammered again as the US  Winter had not arrived in most regions of the Country, Chicago and NY the  exceptions.
Nat Gas  futures declined by 12.25% or $0.327/mmbtu after falling by 12.8% the prior  week. Nat Gas made efforts several times last week trying to put together a  Short covering rally.
Unfortunately  for the bottom pickers it failed and came nowhere near approaching the  $2.72/mmbtu level breached about 2 wks ago.
In the end  Nat Gas made another new intra-day life of contract low with the Shorts headed  home for the weekend comfortable with their positions.
Looking at  the situation all of the normal price drivers for the Nat Gas complex remain  biased to the Bearish side with the sole exception of the fact that the market  is starting to get a bit oversold and may be due for a Short covering rally at  some point in here.
Nat Gas  futures made yet another new life of contract low last week with a potential for  prices falling the low $2′s before too long, imagine $2 NG…T. Boone  Pickins is calling for $1 NG.

In spite of the fact that the market  is still oversold, as least measured by the commonly followed RSI indicator  which is around the low 20′s for the 10-Day RSI there is no indication that  the market is setting up for a strong Short covering rally.

Normally the  market is considered oversold when the indicator drops below the 20 mark. So, it  is not there yet, but as with most indicators none of them are perfect nor  always correct. But, they are a guide to incorporate in ones overall  trading ideas.

When markets are in a strong trend, as Nat Gas is now,  oversold indicators like the RSI can remain in an oversold state for a long  period of time.

That said a  Short covering rally will occur when it is least expected. The magnitude of the  rally will be dependent on what triggers it.
If it is a  result of very cold weather projected for an extended period of time the rally  could be very Strong and likely send prices back to a test of the $3.05/mmbtu  resistance level.
If is only  due to sellers drying up then the rally will be modest and likely test the  $2.72/mmbtu level. But it is time to get on the Short covering rally  watch and look for the Key reversal. Currently prices are now trading below the  Y 2009 lows with not much support until the market hits around  $1.905/mmbtu.

Predicting when Short covering rallies will occur and what  the magnitude is not a precise exercise . The bottom pickers have been  predicting and actually setting up positions since the price was in the low $3′s  looking for a rally to hit, they are still looking.

For the  moment the market remains in a downtrend and will remain in that mode until  proven otherwise. Wait for the market to signal that it is turning.
Baker Hughes Rotary Rig Count
US Oil       and Gas

for the week ending January 20, 2012
January 20, 2012 previous
week
change %change from
previous             month1
%change from
previous             year2
U.S. Gas 780 791 -11 -3% -14%
U.S. Oil 1223 1191 32 2% 53%
U.S. Offshore 45 43 2 7% 67%
U.S. Total 2008 1987 21 0% 17%
Paul A.  Ebeling, Jnr.

Paul A. Ebeling, Jnr

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.
www.livetradingnews.com

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Posted by on Jan 22nd, 2012and filed underEnergy, Latest News, Natural Gas, News & Events, Paul Ebeling, Research.You can follow any responses to this entry through theRSS 2.0Responses are currently closed, but you can trackback from your own site.

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