Although natural gas prices held within Tuesday’s price range during today’s session, the contract for January delivery on the New York Mercantile Exchange closed in the high end of the day’s range at $3.352, a gain of 1.12% and a new closing high for the advance from the November low.
The strong close bodes well for natural gas prices heading into Thursday’s session, with the next upside target near the $3.400 level. Today’s higher close also confirmed a break above the 61.8% retracement level of the decline from the mid October high through the November low. Sustaining the 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.
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. The advance left the contract heavily overbought. The ability to produce a strong close and gain of over 1% today in the presence of this overbought condition is considered a sign of strength.
Should natural gas prices come under pressure over the near term, 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 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.
Tomorrow at 10:30am ET, the Energy Information Administration will release the latest natural gas inventories report.