In 2015, Natural Gas has been a frustrating market to trade for the both the bulls and the bears, as it has remained in a range between $2.50 and $3.00 for most of the year. I don’t know what direction this range is going to resolve in, but as I’ll explain below, the weight of evidence suggests that it’s appropriate to approach this market from the long side in the coming months.
The first thing I want to point to is seasonality. Data compiled over the last thirty years suggests that we are currently entering the strongest two months of the year for Natural Gas prices, with gains averaging 13% and 8.8% respectively. The second thing that catches my attention is the net long positioning of commercial hedgers, which is currently hovering around all-time highs, as it has been since late last year. Lastly, although public sentiment has come off of its lowest levels of the year and is peaking its head into neutral territory, pessimism is still quite abundant relative to what we’ve seen throughout history.
Overall, I’d say the backdrop we’re currently provided by sentiment and seasonality suggests that we look at this market from the long side, but let’s see what clues price action is giving us.
The weekly chart is showing us that prices are clearly in a structural downtrend, as shown by the series of lower highs and lower lows, as well as a downward sloping 200 week moving average. More recently, prices have found some support around the $2.60 area and has been carving out a base above that level for most of the year. Despite momentum diverging positively for most of the year, we’re beginning to see it slowly lose grip of this trend line support, which isn’t great. For the time being, we remain rangebound between $2.55 and $2.95, with some overhead resistance near $3.10 which represents support from 2012 and 2013.