Wednesday, October 28, 2009

Natural Gas Roll

Natural Gas has a cluster of resistence at the 5.57 level on the spot month chart. From the Oct 19 and Oct 13 post: 
"Over 5.12 and 5.57 looms large. The "-c-" = 1.618 of "-a-" @ 5.59 That target is ALSO  c = 1.382 of a ( of a greater degree on the spot chart) AND the long term .236 retrace of 15.78 to 2.40.  That represents a significant cluster of resistance. Given the near record inventories, and the seasonal tendency for an intermediate term pullback from Oct on, the downside risk following the next leg up will be HIGH.
Additionally there is the potential for the pullback to last several months into the seasonal early winter low. If for instance that were to be a not uncommon 50% pullback on the spot chart to roughly 4.00, that would represent some real pain for holders of the Feb. contract."

The main point here is that with the roll tonight and the current Nov/Dec spread adding something like .72 to the spot chart that resistance level may be in play. In fact it is the 50% retrace on the Dec chart from yesterdays lows.

Note the Head and Shoulders neckline that also cuts right about there: quite a lot of resistance all together. And IF that level is taken out, the .618 remains, exceeding that would be a real indication of unusual strength. The next  fib retrace on the longer term charts would be the .382 retrace of 13.70 to 2.40 at 6.72.

Unusual strength is unlikely given the seasonal trends and the current overbought condition of equities. BUT...

Click on chart to enlarge.
The Dec  chart has ALREADY retraced 50% of it's move off the lows AND
with the roll into Dec. as the spot month, even further deterioration down to the 5.00 level will still be pretty healthy looking on the spot chart:


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