Fundamentals

The old saying 'every dog has its day' could certainly apply to the Natural Gas futures market as the December futures contract has risen to highs not seen since June, despite a record amount of Gas in storage. It is still too early to tell to what extent the recent rally may be due to speculative short-covering. The most recent Commitment of Traders report shows large non-commercial traders were holding a net-short position of 64,050 contracts as of October 13th. This was a decline of 1,902 contracts for the week and does not take into account the activity that occurred during the nearly 0.750 point rally since the report was released. Also adding a bit of bullish fuel to the recent rally are predictions that a weak El Nino weather pattern may result in a colder than normal winter. If true, it may cause utilities Gas usage for heating demand to increase, helping to cut into the current burdensome supplies. Traders are also beginning to anticipate an uptick in industrial demand now that there are signs that the worst of the recession is behind us and an improvement in industrial production may not be far off. However, until we start to see fresh buying entering the market, any major rally attempts could be met with eager sellers -- especially with futures trading above cash prices. Traders should monitor government data to gauge the extent of any economic recovery, as Natural Gas futures have been acting as a barometer to economic conditions here in the U.S.

Technical Notes

Looking at the daily chart for December Natural Gas, we notice prices broke above the highs of the month-long consolidation pattern at the 5.300 level. This now sets-up a test of psychological resistance at the 6.000 level. Above 6.000, we see chart resistance at the June 16th high at 6.170. Despite moving to nearly 4-month highs, the 14-day RSI has not made a new high for the move, and may be signaling a potential bearish divergence. Support for the December futures is seen at last week's lows of 5.280, with major support at 5.200.

OptionXpress

---