Natural gas prices have appreciated 13% in the last 4 weeks, lifting futures to within pennies of the 61.8% Fibonacci level seen on the chart above at $3.70 on the May contract. As one can see, this has put the stochastic in the daily chart at overbought levels. I believe the money has been made on the bullish trade, and those wanting exposure in this commodity would be better positioned in bearish trade. The last 2 occasions prices were at these levels, they were met with selling. In December and again in January, after trading around these same levels, prices retraced over 50 cents on both occasions. Past performance is not indicative of future results.
Storage levels are abundant, and we should see demand continue to taper off, so fundamentals do support a move south. Markets always do not trade off fundamentals, though, so I would like to see confirmation from a technical standpoint. Typically, when both fundamentals and technicals say buy and both say sell, I feel better about the trade.
Gaining bearish exposure via futures with some options protection would be my favored play at current levels. I would try to capitalize on a drop of 20-30 cents in the coming weeks. This would get the May contract back near the 50 day MA -- identified by the green line on the chart above. I would not bet on prices trading under $3 any time in the immediate future. But I would not rule out a challenge of the recent lows that have held in 2013. A complete retracement would equate to a loss of just better than 10%.
Risk Disclaimer: The opinions contained herein are for general information only and not tailored to any specific investor's needs or investment goals. Any opinions expressed in this article are as of the date indicated. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.