Natural Gas Breaks Support on Tuesday

Natural gas markets have found quite a bit of selling pressure during the early Tuesday session as a confluence of negativity has rocked the marketplace. Seasonally speaking, this is typically a time of year that is a little bit softer than many other seasons, as demand for heating is all but nonexistent. Remember, most natural gas trading is based on the US Henry Hub contract. Even if you are trading in a CFD market, it is a derivative of US based pricing.

Fresh New Lows 

Natural gas has broken below the $2.85 level, an area that has shown itself to be important a couple of times in the past. By plunging below the $2.85 level, this does open up more confidence for sellers, as those who are defending the $2.85 area are now finding themselves rapidly underwater. By creating new lows, it suggests that the natural gas market could extend selling pressure, perhaps aiming for the psychologically important $2.50 level. There was a gap in late April that might have a bit of a slight influence on the market as far as stabilization. That being said, there are a strong confluence of negative factors.

Negative Factors

The negative factors for natural gas are mounting. The first one that I see is the 50 Day EMA breaking down below the 200 Day EMA, kicking off the so-called “death cross”, something that a lot of technical traders look at as a massive bearish signal. Furthermore, the volume seems to be stronger for red days than green. Cooler temperatures in the United States had driven down the demand for natural gas, as air conditioners aren’t being pushed as hard as they often are in August.

Furthermore, production of natural gas has strengthened, as we are near record output. One other thing to consider is that the global economy seems to be in a bit of a conundrum at the moment, as the tariff situation continues to weigh upon the markets. The selling on Tuesday marks a nine-month low in natural gas, it shows no real signs all turning things around. In fact, using basic technical analysis, most traders will look at the $3.00 level as a potential ceiling, followed by the $3.20 level, which had been resistant previously.

All of that being said, heat wave in the United States could spark short-term buying, but in this environment, it is more likely than not going to attract short sellers Furthermore, traders will start to focus on fall, and perhaps more importantly, winter. However, the plunge in the meantime might be rather brutal, and traders will continue to look at any rally with skepticism. The 50 Day EMA is all the way up at the $3.29 level, followed by the 200 Day EMA at the $3.33 level. As things stand currently, it would take quite a bit of effort to get there, so one would assume that short-term traders will continue to pressure this market as supply and lack of demand are a toxic combination.

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