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Potential Breakout for Natural Gas by TrendFollower

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Natural Gas seems to have broken its recent trading range. Whether this is a false breakout time will tell. At the moment it is trading above its 20, 50 and 100 DMA's and approaching its 200 DMA based on the 'daily' timeframe / chart. This is bullish short term. I would like to see the moving average curves slope upwards for confirmation but this is an asset if you get in early and are right in the direction of the trade then can reap big rewards. It is very volatile and I have been burnt before so this is not an asset that novice or inexperienced in trading commodities should dabble in. 

I include the 'daily' chart below to illustrate my MA's point above.

1562356848_NaturalGas_20190907_22_17.png.fb8665223e64a502d2e0bf4601d1d5c3.png

Now one must look at the fundamentals to see if one can begin to understand the reason for the recent potential price breakout from the trading range. 

From a fundamental perspective, it is well documents that China's Natural Gas demand has been booming for years. The problem is the large supply glut in the US.

The EIA recently reported an increase in the supply of domestic Natural Gas rose by 84 billion cubic feet for the week. There has been hotter temperatures recorded in the US which may have boosted Natural Gas prices short term. 

One thing to remember is that any upside move could be related to short covering as there will be a lot of short contracts that will need to unwind in the months ahead. One should keep monitoring the price action and try to ensure any moves make sense and are supported by fundamentals as this is what large upwards rallies in Natural Gas are based on. The speculation comes a little bit later. The herd even later. 

It is about identifying the potential strongest trending assets as early as possible but they will not all be successful. Therefore when using this approach in Commodities I find it is important to ensure some fundamental analysis is conducted so one can understand if the price move is backed by a strong narrative which makes sense. Weather and Supply and Demand are the two key concepts one must investigate when looking at trading Natural Gas both on the long and short side. 

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Natural Gas is continuing its breakout price action. It seems to be heading towards 2800 when looking at the 'daily' chart which I include below. It has also crossed its 200 DMA on the 'daily' which is another bullish indicator for a potential long trade on Natural Gas. 

1926987451_NaturalGas_20190914_10_29.png.cbe5765f0fea23cb4a6e76f39a66e1c0.png

Of course trading Natural Gas comes with its own unique warnings so one must tread carefully and have robust risk management in place. 

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When you begin looking at Natural Gas from a fundamental perspective to try and better understand the reason for the recent price action, you begin to uncover certain key points. So first of all, in case some of you are not aware the US is the biggest producer of Natural Gas. It is using more Natural Gas to generate electricity and it is increasing the amount of Natural Gas it is exporting to the rest of the world. Therefore from a 'demand' perspective one could say that recently demand has been increasing. Now historically it is well documented that there was a huge or even enormous supply glut of Natural Gas. This depressed prices. The US has also witnessed certain weather conditions which has affected the production and use of Natural Gas. 

Now one must not get carried away with the recent price action. There is still a big supply glut of Natural Gas and if demand were to decline then prices could continue to go downwards. This is the risk any trader looking to trade on the 'long' side faces.

What we could be seeing is short covering as the number of short positions to long position are around 3 to 1. 

This is why one must have stop losses in place and one must trade the price action but not get emotionally attached to any potential long term story or narrative that the media presents. It is ok to go 'long' on Natural Gas based on the current potential breakout and price action. It is also ok to go 'long' based on the price going above its 20, 50, 100 and 200 DMA. However this could reverse violently and quickly so stop loss management is important. Should there be any decrease in demand and continued increase in supply then it would not surprise me for Natural Gas to go below $2.00. Right now it seems to be that the price may head towards $2.80 so I am intrigued to see if the price reaches this level. If it does then the $3.00 price level looks a potential possibility. 

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There have also been a couple of reports of explosions in Natural Gas fracking operations during the past couple of days. Add to the mix the Middle East tensions and one begins to see some weight behind the price action of Natural Gas. This coming week will be rather interesting to see if the breakout potential continues. 

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Right now everyone is looking at trading US Crude Oil and Brent Crude Oil. This price action is based on the Saudi drone attack. Prior to this there was no clear direction for Oil from a trading perspective and it was rather range bound and choppy. 

Natural Gas prices have not reacted like the Oil prices. However the following was reported yesterday:

"Saudi Energy Minister Abdulaziz bin Salman said the attacks also led to a halt in gas production that will reduce the supply of ethane and natural gas liquids by 50%."

Now when the US markets open today there is the potential of speculative capital flowing into Natural Gas and it could also see a major spike today. Now there is lots of supply in the US and that glut has been around for a long time and many years so this event will not change that. Therefore any spike in prices should result in a downwards sharp drop shortly after. 

Now obviously I have made a trading assumption. The price action will test my assumption. The current price is $2.67. Let's see what the price is later on this evening. 

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@TrendFollower

I'm with you on this one, I think the market has been very focused on the movement of oil but have forgotten that this will also affect NG.

I'm also prepped for Defense stocks as Trump has flexed his muscles, and the US is a large supplier of defense to KSA.

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@AbDXB1345,

If you look at both Crude and Brent Oil charts against the Natural Gas charts on the 'daily' then you will see that Oil is still in a downtrend where as Natural Gas is looking like it is breaking out from its downtrend. It seems the downside may have been priced in to Natural Gas where as Oil could have further to fall. Now this may not happen but if you look at both Oil and Gas on the 'daily' then you will see why I am suggesting this. Of course it is only a trading assumption but nevertheless it will be interesting to see how this plays out.

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Natural Gas is now deciding to flex its muscles and motor upwards. I hope those of who are are using leverage are enjoying the profits here.

1798854245_NaturalGas_20190916_13_14.png.f9c24ea7fd7111927e6e25a06a25ac4a.png

It looks like it will try and go for 2717 which it hit earlier. 

 

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@AbDXB1345,

Natural Gas hit 2727 and is up around 3% at the time of writing this post. 

There have been many who have asked me what is a strong trending asset and here is an example of a strong trending asset since the end of August 2019 to date so around 2-3 weeks.

Natural Gas may only be a trade that lasts 1-2 months on the long side but there is profit to be made so it is a case of riding the trend until it changes as based on my past experience the volatility can be ruthless. However, the pullbacks will be sharp and it is important not to exit on a pull back but a confirmed trend reversal. The pull backs will feel like they are a trend reversal due to the sharpness of them but based on my own personal experience one needs to be monitoring the price action like a hawk.

One also needs to be following the fundamentals of Natural Gas closely too. One must be aware of the supply and production which gets reported and be aware of the demand forecasts against actuals.

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As both Brent and US Crude Oil take a tumble and come back down to earth once the day traders and speculative capital take their profits, Natural Gas, is proving more stable though it too is correcting as I type this message. 

I now want to see if this is a mere pull back and then the uptrend resumes or whether downward pressure builds. 

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Natural Gas is showing 2522 at the time of writing. With the cold weather forecasts it seems there could be some upside potential over the coming weeks and months.

It also seems to have bottomed and seems to be making a play upwards.

You can see the 'Awesome Oscillator' changing and moving above 0 which can be perceived as a signal for a potential trend change and breakout. 

237483009_NaturalGas_20191028_10_02.png.3fdd867e32e37fba13f9ffbfe9f1a74e.png

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On 28/10/2019 at 10:03, TrendFollower said:

Natural Gas is showing 2522 at the time of writing. With the cold weather forecasts it seems there could be some upside potential over the coming weeks and months.

It also seems to have bottomed and seems to be making a play upwards.

You can see the 'Awesome Oscillator' changing and moving above 0 which can be perceived as a signal for a potential trend change and breakout. 

237483009_NaturalGas_20191028_10_02.png.3fdd867e32e37fba13f9ffbfe9f1a74e.png

Great thinking with the weather forecast prediction which shows this week. Natural gas is up this week. But how long do you think it will stay up? We can see some downward trending from 13:00 to 14:30 GMT. 

image.png

 

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@CharlotteIG,

Natural Gas has met some resistance but strong trends which are going to last do not go up in a straight line.

There will be downward price action along the way if this trend does actually manifest itself into a stronger and bullish one.

I notice your chart was using '30 mins' timeframe. I tend to look at 'daily' timeframes. 

In terms of how long do I think it will stay up, this I do not know. It will depend on the weather, supply and demand, speculative capital willing to take 'risk', etc. I think if it can move past the current resistance then it may have some legs but I do not know. The price action will give us the answer going forwards.  I do not pay much attention to downward trending price action for one and a half hours. That is for the day traders and short term traders. I am more a longer term trader and trend follower using 'daily' timeframes. 

I find one of the best techniques is to simply follow the price action the 'good old fashioned way'. Living and breathing the price action of an asset helps to better understand what makes it go up and what makes it go down. Following the price action daily allows a trader to live and breath that asset which gives them a better chance of making correct directional trade decisions. No guarantees of course. Natural Gas is an extremely volatile and difficult asset to trade at the best of times. I have been burnt on Natural Gas in the past, many years ago. It is not for the feint hearted that is for sure. 

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Natural Gas has a tendency to spike sharply upwards and fall sharply downwards thereafter. These events happen every year or two due to some supply shock, demand issue, weather phenomena, etc. 

If a trader can identify the sharp spike upwards then it can profit from a long position and then also make money on the way down by shorting it. 

It just requires patience but if you look at the 'monthly' and 'weekly' charts then it will highlight the point I am trying to make. 

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Natural Gas is looking like it is readying itself for the next leg up. It seems like it will have to take out the 2800 area first before it attempts the 3000 area which will be an important psychological area. 

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Apparently China's consumption of Natural Gas is rising and it is making up for this with increasing its imports. We know the US has large reserves of Natural Gas. 

It is also being reported that the US has just doubled its Natural Gas exports. Its main exports being to the likes of Canada and Mexico. 

This seems like a very bullish narrative for Natural Gas prices. 

There has been a large supply glut in Natural Gas for many years now. Even when there has been extreme weather conditions it has still not put a real rocket up Natural Gas prices like in previous extreme rallies in this asset. 

In my experience Natural Gas consumption can increase in the winter when people use their heaters in cold weather conditions and also in the summer when people use their air conditions units more. This is all about demand and supply. If the supply glut can be seen to being reduced then it could act as fuel for a nice rally in Natural Gas prices. This is only a possible scenario and one will need to keep a close eye on the supply situation of Natural Gas. 

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Natural Gas is trading at 2822 and is looking ripe for to have a go at 3000.

The 'Awesome Oscillator' is showing a bullish indicator. 

644185914_NaturalGas_20191104_05_19.png.10fbad736cfc5c263b1e465aac0c4caa.png

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Just look at at the 'Parabolic SAR' and as I mentioned on a couple of posts in this thread the 'Awesome Oscillator'

1696169893_NaturalGas_20191104_18_07.png.469e8d4b5a3a561039b5251f3e4943a8.png

This is a strong indication of not only a trend change but also a very bullish price action. I think Natural Gas is going to attempt 3000 for sure. Sorry when I say 3000 I mean $3.00 but I tend to use the numbers on my UK Spread Betting platform just out of habit as I find it easier and my brain is more interested in the numbers on my screen. 

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Any next leg up for Natural Gas must take it above 3000 otherwise it could be a potential signalling for trend weakness. 

The cold weather forecast may just help it achieve this. 

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On 08/11/2019 at 05:22, TrendFollower said:

Any next leg up for Natural Gas must take it above 3000 otherwise it could be a potential signalling for trend weakness. 

The cold weather forecast may just help it achieve this. 

It's down around 119 point from the open tofay, but not as low as it's been this month: 

image.png

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It seems Natural Gas is moving towards the 2500 price area. This seems more likely than 3000 price area at this moment in time. However, Nat Gas, is one of the kings of volatility and it can sharply spike upwards on a moment of severe weather being forecasted which leads to more usage of heating and decreases the humongous supply glut in the US. 

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Could this be the next big move before Christmas on Natural Gas?

833821817_NaturalGas_20191113_20_55.thumb.png.c19aa525236925f88c6022a4fa40ad47.png

Natural Gas is one of those assets which will move totally against your view when you expect the opposite so do not be surprised if it moves downwards now!!!

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Natural gas still moving down. I think everyone is wondering if/ when this is going to turn. 

 

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@CharlotteIG,

If you look at the chart 'daily' then you will see the recent price action has resulted in Natural Gas making 'Higher Highs' and 'Lower Highs'. 

893478473_NaturalGas_20191120_05_33.thumb.png.38823cef9c5879877df24f41ce6195ec.png

The orange ovals highlight this. If you look at the red oval I have used then based on this current pattern that is the price area where I expect Natural Gas to move to and then turn upwards. That is if Natural Gas is going to participate in the continuation of this pattern and there is no rule on earth that states it must. 

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Keep an eye out. Nat Gas, rose on the long term weather forecast in Oct which said that the coming winter would be colder than average and the month of November would be particularly cold. Prices fell as the last prediction proved unfounded and today we have the US Nat Gas storage figures, Forecast estimates for today's figure range between plus 18B cubic feet to minus 86B so could be market turmoil ahead. Nat Gas data out at 3:30pm today. 

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Natural Gas has bounced off my 'red oval' as you can see in my 'daily' chart below.

2059286100_NaturalGas_20191121_18_50.thumb.png.49ed0449c304fffcebee052eca453bd8.png

The question now is whether it will kick on with another 'higher high'

Below is from MarketWatch:

"The U.S. Energy Information Administration reported Thursday that domestic supplies of natural gas fell by 94 billion cubic feet for the week ended Nov. 8. That marked the first decline of the inventory withdrawal season. Analysts expected a fall of 91 billion cubic feet, on average, according to a survey conducted by S&P Global Platts. Total stocks now stand at 3.638 trillion cubic feet, up 506 billion cubic feet from a year ago, but 60 billion cubic feet below the five-year average, the government said. December natural gas NGZ19, +0.86% traded at $2.577 per million British thermal units, up 1.8 cents, or 0.7%, from Wednesday's settlement. It was trading at $2.552 before the data."

It seems that the inventory numbers came in lower than anticipated. This may prove to be bullish shorter term. The one thing to remember is that we are approaching the coldest part of the year. A move towards $3.00 is going to be something that may be the direction Natural Gas is heading for. In my experience this asset is extremely volatile and I am expecting some serious 'choppiness' and lots of back and forth regardless of direction of price action. 

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The question I am now asking myself is whether the price of Natural Gas will go down to the area in the 'red rectangle' I have highlighted in the chart below before it recommences another move upwards?

1353723331_NaturalGas_20191125_20_41.thumb.png.53cea043bfca44389117e98b4279abbd.png

It seems to be heading that way and I would not be surprised if we saw it go down to around the $2.49 price area before recovering strongly with an upward bounce. 

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