The last time I talked about natural gas was two months ago,
There was this huge base at $2.00 on the monthly chart going back 18 years. In September, I noticed a monthly hammer candle had formed in August. If you are aware of the common candle stick patterns, a hammer candle usually occurs at the bottom of a down trend. However, what confirmed the end of the downtrend was on the daily chart, price has formed a demand zone, on top of a demand zone. I call a zone on top of a zone, a level on level and is one of the most powerful formation when trading supply and demand zones. Thus, the chart suggest to go long a pull back to the daily demand levels and go long with a target at $2.700.
Please note, there are typically two seasons for the U.S. gas market: Summer (April-Oct) and Winter (November-March). Gas is injected into the ground in Summer and gas is withdrawn in Winter to meet demand that rises well above production. Please note, today is November 6th.
Natural gas prices surged higher on Monday climbing nearly 4% after rising 5.25% for the week. Short-covering by funds should continue. The weather is expected to remain cooler than normal through most of the eastern portion of the United States over the next 6-10 and 8-14 days.
Hedge fund traders reduced some of their short position in futures and options and added to longs, but remain exposed to a short-squeeze. According to the most recent commitment of trader’s report released for the date ending October 29, 2019 managed money reduced short position in futures and options by 21.5K contracts while increasing long positions in futures and options by 11K contracts. The current net short position at 299K contracts is nearly 3X the open interest that is short futures and options, providing the backdrop for a short-squeeze.
Overall, the Smart Money is still net short natural gas, but are being forced to recover the positions due to being short squeezed. In this case, the short squeeze is occurring because of the excess in demand for the contract and lack of sellers. Since price has moved up rapidly, the short sellers are covering to preserve some of their gains and/or cap their losses, resulting in additional buying, which is causing price to move higher.
So where are prices headed next, the chart suggests price is heading to the weekly supply at $3.100.
This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.