Natural Gas have been gaining slowly but steadily since last Thursday which saw prices falling sharply to 3.13 at the drop of a hat due to a surprised increase in inventory storage. The weekly Energy Information Administration report showed a gain of 96B cubic feet, 22B more than the expected 74B and almost twice that of previous week. This suggest that the implied demand of Natural Gas was lower, resulting in a quick sell off from 3.25. Amazingly, price rebounded quickly and started the 1st leg of the rally which extended all the way till today inclusive.
The reason for the strong rebound is clear. Prices has tagged a significant support seen on the Weekly Chart, where numerous bids were previously made. Bears were shock to see the strong bearish news release unable to make any headway, and hence retreated, resulting in many profit taking activities from the bears – pushing prices up steadily.
Where are we headed to moving forward? Should we take cue from the uptrend since 2012 May lows which is apparently still in play due to the holding of 3.12, or do we take reference from the dip which started in April 2013?
Stochastic readings which are currently heavily oversold leans towards the upside, but that itself is not clear as readings have yet to cross the Signal line not to mention the 20.0 level which is needed for a proper bullish cycle signal. However, tIt is likely that the 3.45 – 3.5 resistance would be broken should Stoch clears the 20.0 level, which will open up price targets above 4+ with 3.75 – 3.85 potentially acting as interim resistance. With such potential strong bullish movements to come if the trend is confirmed, traders would not be terribly short-changed if they decided to hold out for further confidence in order to stay on the side of prudence.
Looking at the short-term, we can see prices continuing to use the Kumo underneath for support. On top of that, there is a rising trendline which will help support price even if Senkou Span A is broken, preventing further movement below or a break of the Senkou Span B. Stochastic readings also suggest that a bullish cycle from here is more likely with readings currently pointing up after dipping below the 20.0 mark.
With EIA data coming out in around 4 hours time, we have the litmus test to help us determine if the underlying bulls are still around for long-term sustainable push higher. Should last week’s situation repeat itself – where implied demand is lower but price managed to trade higher after settling down, we would have the evidence we need that uptrend from 2012 May is in force. Alternatively, if a stronger than expected implied demand fails to breach 3.38, or fall back below yesterday’s high, initiative would land on the bearish side. Any other situation in between those 2 extremes may be less helpful in helping us determine long-term trends, but should trendline and Ichimoku continue to hold, the neutrality of the event would imply that the default winner should be the incumbent bullish sentiment.
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