Natural gas snapped a 2-day losing streak today, but did close off the highs of the day. The contract for November delivery ended the session up 0.59% at $3.263. The high for the day, by comparison, was at $3.317.
Price action since October 13th, when the contract soared to its highest level since December 2014, is serving to ease the extreme overbought condition that developed as a result of the 15% rally that took place after the establishment of the late September/early October corrective bottom. The advance lifted the Stochastic, a price momentum indicator, to overbought territory on both a daily and weekly basis. The indicator remains marginally overbought on a daily basis.
Open interest increased 5.7% from the September 30th close through the October 13th close, indicating that new longs entering the market drove the advance, a bullish sign that suggests the recent consolidation should prove temporary and be followed by a further move higher. A follow through advance to test the upper channel line shown on the weekly chart would call for an eventual move to approximately $3.50.
On the downside, key support is at the former highs established in early July and September 22nd, at the $3.166-$3.148 zone. This level reversed roles and provided support on October 10th. Continuing to hold this former resistance would keep the contract well-positioned to resume the advance over the near term. However, should selling take hold and this support give way, the liquidation of new longs, combined with the lack of additional nearby chart-based support below $3.166-$3.148 zone, could exacerbate the decline, resulting in a swift move lower.
The current consolidation has the potential to remain intact in tomorrow’s trading. However, volatility has the potential to increase Thursday, as weekly EIA data will be released at 10:30am ET.