$4.45 is the line in the sand for natural gas as June futures have been rejected on all recent attempts to move higher. Futures have given up the last three sessions, something that hasn't happened since March. Today's slide is the worst, with prices down nearly 7% as of this post.
Those not already involved in bearish trade can get short now on bounces. My favored play is short futures while simultaneously selling out-of-the-money puts 1:1.
Today's plunge was caused by a larger than anticipated build in inventories on the weekly energy report. Stockpiles climbed 43B cubic feet in the last week, well above the 30 bcf rise that was projected. Total stockpiles have reached 1,777 bcf, according to the EIA. The steep increase suggests demand from utilities (for electricity and heating) may be coming in weaker than expected. These are the two biggest drivers of natural gas, so slack demand here is very bearish for prices. What's more, with warmer temperatures coming in the weeks ahead, storage injections could climb further.
This week's number caught most market participants off guard. But for the bears who have stuck with me… we could be getting the breakdown I've been forecasting.
Natural gas prices are finding mild support at the 38.2% Fibonacci level. I'm still expecting lower trade after a brief pause in selling. A key development would be a breach of the 50-day MA (green line). Prices have been above this pivot point since late February, when prices were nearly 15% lower than current levels.
On bearish trade, use the Fibonacci levels on the chart above as your profit objectives. The 50% Fib level is 15 cents below current trade. The 61.8% retracement and 100-day MA come in 30 cents under current pricing… trade accordingly.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.