Whipsaw
Today’s Spotlight Market? – ? Erratic winter weather patterns have caused a spike in Natural Gas volatility.? Given the market?s rally to four-year highs and shift in temperatures, volatility is likely to remain unpredictable in the near-term.? Colder than normal temperatures have gripped the Midwest and Northeast.? However, weather forecasts are calling for normal or above average temperatures for the East Coast in early February, tempering the bullish sentiment brought on by the cold spell.? Technically, the market has seen an upside breakout above the 4.50 level.? Yesterday?s key reversal may make traders a bit cautious regarding the breakout.
Fundamentals? – ? Fundamentally, the Natural Gas market remains well supplied.? However, the recent destocking of the inventories has tightened supplies substantially.?? Traders may want to keep an eye on this Thursday?s storage report.? The trend has been a destocking of inventories.? If this trend continues, the market could take-out yesterday?s highs.? Traders remain net short the Natural Gas market to the tune of 46,041 contracts, which has decreased by close to 15,000 contracts from the prior week.? This suggests additional shorts could potentially be squeezed out of the market.? Volatility could be high in coming sessions, as both sides of the market could be shy to pull the trigger.? Bulls may view the recent price action as being overdone and may be reluctant to add to positions at these price levels.? The bear camp may be worried about a squeeze.? This suggests the market could see an uptick in scalping activity.
Technical Notes? -? View Today’s Chart
Turning to the chart, we see that the March Natural Gas (NGH14) contract blasted through resistance at the 4.50 level with ease.? However, yesterday?s price action formed what could potentially be seen as a reversal day. The body of yesterday?s candlestick is inside the prior day?s range, somewhat diluting the reversal indicator.? If prices are able to hold the 4.50 level, prices may continue higher.? The next resistance area may be found at 5.400.
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