Natural gas prices extended the recent advance with a move to $3.367 for a high in today’s trading, but failed to sustain the rally, as the contract for January delivery on the New York Mercantile Exchange fell back to settle the day at $3.315, down 0.15%.
In Monday’s trading, natural gas prices gapped sharply higher at the open and posted additional intraday gains, ending the day up 3.7%. This followed a rally of more than 7% in last week’s trading. Monday’s advance occurred as updated weather forecasts indicate colder weather is on the way.
According to natgasweather.com, over the western US, fresh weather systems and cold blasts will arrive with rain, snow, and cooler than normal temperatures. These systems will push into the eastern US late this week and this coming weekend. As a result, natural gas demand will increase to above normal Friday through this weekend.
However, natural gas prices became extremely overbought as a result of the recent advance, increasing the potential for at least a period of consolidation and perhaps a pullback.
On the downside, first support is at the gap created as a result of Monday’s strong open, from the $3.251 to the $3.223 level. Holding above this zone on a further move to the downside would indicate underlying strength and keep natural gas prices well-positioned to resume the upmove. Below this gap, the next level of support is at former resistance at the $3.142.
The contract is now testing the 61.8% retracement level of the decline from the mid October high through the November low. A sustained break above this retracement level would increase the probabilities of a complete retracement of the decline with a move to the October peak at $3.674. Minor potential resistance comes in ahead of this level near the $3.400 level.
January Natural Gas Futures Daily Chart