By Deepak Rangan
The chart of natural gas had given no indication any imminent uptrend- until now.
Nymex natural gas prices have been on a constant decline after peaking above $11/MMBtu in 2008. Prices are now trading around $2.550/MMBtu- a more than 75% decline in just over 3 years.
The commodity had been on a non-stop downtrend since June 2011 and now is the first time that prices are indicating a possibility of bottoming out (see chart below)
Prices seemed to have held on well at $2.400 level and even those analysts who point to the commodity's weak fundamentals also agree that the selloff might be overdone and that nat gas could be setting up for an upmove, at least for the short term.
The resistance is seen at $2.800 (red line) and a strong break above could initially target $3.500-$3.700 area ( red zone).
But traders should be prepared to exit the trade on any indication that the downtrend has resumed. Keep in mind that the fundamentals, the supply-demand situation, remain extremely weak and is negative. Weather is also unsupportive and does not seem to trigger increased consumer demand.
