Fundamentals

A chilly start to 2010 has Natural Gas bulls starting to warm up to a futures contract that has been mired in a bear market since the middle of 2008. This past Thursday, the Energy Information Administration reported that 266 billion cubic feet (bcf) of Gas was removed from storage the week ending January 8th, just missing the all- time record draw of 274 bcf that occurred in January 2008. This was well above last year's 88 bcf draw and has helped to cut into the record amount of Gas held in storage going into the winter. Supplies now total 2.852 tcf, or 3.7% above last year's totals. However, old habits tend to die hard, as traders reacted to the EIA figures by selling Gas futures, as weak longs were 'disappointed' that the draw did not reach record levels. In addition, some private weather forecasts are calling for a warming trend to enter the Midwest and Northeast, with above-normal temperatures expected to last through the last week of January. Although lead month Natural Gas futures prices have doubled since the lows were made back in September of 2009, some traders remain skeptical that prices will rise much higher until we see industrial demand improve. The December non-farm payrolls report did little to negate these feelings, as the Labor Department announced that 85,000 jobs were lost last month. Since it appears that a robust economic recovery is not imminent, it might be the weatherman who will be the focus of energy traders' attention in the first quarter of 2010.

Technical Notes

Looking at the daily chart for March Natural gas, we notice a potential ascending triangle formation. This is normally viewed as a bullish chart formation, which is confirmed if prices break out above the upper trendline once the current consolidation phase has ended. The 20 and 100-day moving averages are bracketing recent daily price ranges, which confirm that prices are still in a consolidation mode. The 14-day RSI is also reading a very neutral 51.94. Support for March Natural Gas is seen at 5.327, with resistance found at 6.027.

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