Wednesday, September 14, 2011

Natural Gas- Seasonal Low ?

Could Natty finally be showing signs of life? Is there a hint of overcoming the relentless sideways action defining this market? I mean 79 of the last 81 weeks the front mo. has traded between 3.80 and 4.80.....
There might be...first of all the recent low of 3.78 occurred on Aug. 30 ...right in line with the historic 20 yr. average seasonal low, of Aug.15. The avg. gain of the rally into the early winter seasonal high is 115%.

Natural Gas pricing is highly weather sensitive, and is insulated from geopolitical and currency risk.
So first of all the weather;

NOAA Climate Prediction  Nov. Dec. Jan (made mid Aug.)

 click to enlarge
 Looks like a toss up.

Gas in storage going into Winter is not overwhelming, and not causing panic as in years past when storage capacity was actually an issue. Compare current levels with 2 yrs ago.

From Sept.9 EIA 
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From Baker Hughs Sept. 9 Rig Count;



 Given the historic tendency to rally from Aug. 30 to Nov. 20, 115% (based on avg of 20 yr.s), how are the spec.s positioned? Is everybody already long?

 From Reuters;
 click to enlarge
Nope. Obviously very short.

Lets go to the Wave Count;
Active Mo. Weekly
 click to enlarge
RSI MACD etc are all neutral on the weekly, so not included.
The most important and striking feature is the .618 Fibonacci retrace of the -A-, acting as support at 3.81. That support has shown up time after time, both exactly at 3.81 ie Mar 29 2010, and at later multiple times with some wiggle room down to around 3.75... The very difficult to count action over the last year is characteristic of a -B- wave structure, and an .618 retrace of the -A- is an ideal potential reversal point.  
The other striking feature is the low made on Aug. 30 2009,  exactly 2 yr.s ago, and the 154% rally that followed, for an -A- wave (of  $3.71).  If the -B- wave did indeed finish up at 3.79 on Aug.30, the -C- = -A- ,   at 7.50. And for the very optimistic, -C- = -A- in percent terms at 9.62.
Even if the -C- = .618 of -A- it targets 6.08.
 Active Mo. Daily
click to enlarge
Note the positive divergence on the RSI. And the c=a on the structure down from 4.98 to 3.78.
There is basing action evident with slightly higher lows. This chart looks like the USD chart did back on Sept 1.  from Signs of Life

                                        USD Daily


 We know what happened there.

So a little more upside momo taking out the 4.25 area and we might get a seasonal rally here..


 Hourly

Slightly overdone, note the negative divergence on the RSI. Good news is there is a 5 wave structure up from the Sept 12 low of 3.82.  However at this point a pullback to the 4th of lesser degree around 3.95 would be expected .

So I am bullish on NG over the next couple mo.s , in contrast to my completely
bearish expectations for crude oil, equities, etc.
It is possible that the spec short positions currently open in NG are forced to close in the event of a collapse in the other markets, resulting in a contra move up, or it could be weather related. In any event Natural Gas has truly gone it's own way now for a couple of years and shows little indication of  ending that now.


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