| The Futures/Intermarket Report September 7, 2007 |
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| Written by Matt Caruso | |
| Sunday, 09 September 2007 | |
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The Futures / Inter Market ReportTrading the World’s MarketsSeptember 7, 2007 Natural gas approaching a bottom?Natural gas has declined from over $9 last December to almost $5 in the past few days, a decline of over 40% in about 10 months. That is in the past and would have been a great shorting opportunity. However, the important question is what is going to happen next for natural gas. We are at an important time of the year for natural gas prices, prices in September usually begin to climb. A September bottom is a seasonal tendency that has proven to be very accurate in natural gas and increase the likelihood for a similar pattern to develop this year. A look at the past 5 years in figure 1 clearly shows that natural gas bottoms and begins to rally in mid September. Figure 1 Chart by genesisft.com This strong seasonal tendency is reason to look for any signs of a potential bottom and change in trend for natural gas. One of the most important indicators of a likely bottom is the buying and selling of the commercial traders or “smart money.” The index of commercial traders can be seen in figure 2, bullish readings have been highlighted with a red vertical line. As you can see, the commercial traders typically have a relatively large position in natural gas before any rallies of importance occur. The added bullishness by commercial traders increases the likelihood of a September bottom in natural gas.
Figure 2 chart by genesisft.com Despite the usefulness of studying commercial traders’ buying and selling and seasonal influences on the price of commodities it is most important to study the direction of price itself. Natural gas prices are approaching a zone of support between $5.50 and $4.50 as seen in figure 3, and we will likely see some price stabilization. However, as can be seen in figure 4, the trend is still currently down. The necessity for the trend to turn higher is crucial in order to enter long. The ability for the blue moving average(40 day) in figure 4 to cross above the red moving average( 9 period moving average of the 40 period moving average) would indicate the uptrend in prices necessary before taking advantage of an increase in natural gas prices. It is crucial to monitor the trend of prices because any change in trend could lead to much higher prices. The seasonal time frame, price support and commercial activity creates a high probability setup for high natural gas prices in the coming weeks.
Figure 3 chart by genesisft.com |
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| Last Updated ( Monday, 17 September 2007 ) |
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