How Low Can Natural Gas Go?

From guest analyst Jena Cartter of PCIFX, A New Horizon Of Perfection.

If one were to look up a textbook definition of a bear market, this year's natural gas market would be it. Yesterday, lead month Natural Gas futures fell to lows not seen since March of 2002, as the EIA weekly storage report showed 65 billion cubic feet (bcf) of gas was placed into storage last week. Although this figure was in line with expectations and well below the 95 bcf injected into storage this time last year, traders continued to focus on weak industrial demand as well as burdensome supplies.

Including last week's build, U.S. supplies of Gas in storage now total 3.323 trillion cubic feet (tcf), which is 18% above the 5-year average. It was a perfect storm for gas bulls this year, with industrial demand expected to be down just over 8.5% this year and summer cooling demand which never really materialized due to relatively cool summer weather in the Midwest and on the east coast. The market psychology is so bearish that traders have not been able to build a 'weather premium' into prices, despite entering the peak Atlantic hurricane season during the month of September. Should the storm season spare the Gas infrastructure in the Gulf of Mexico this year, it is possible we may see a record amount of Gas in storage going into the winter.

November 1st is considered the 'official' start of the heating season in the U.S., in which energy producers begin to draw Gas out of storing to meet heating demand. Some traders believe we may reach maximum storage capacity of just under 3.9 tcf before this occurs. The previous record was 3.545 tcf of gas in storage in 2007. Large speculators are holding a large net short position in Natural Gas futures according to the most recent Commitment of Traders report (COT). According to the COT, large non-commercial traders were net short 89,239 contracts as of August 25th. Small speculative traders were net long 49,161 contracts.

This information really highlights the trading styles of large and small speculators, as large speculators have historically been trend followers who will add to wining trades as the market moves in their direction. Small speculators like to try to pick tops and bottoms in a market, which is a difficult task for those lacking the funds to hold a position in the midst of a strong trending market.

Technical Notes
Looking at the daily chart for October Natural Gas, we notice prices accelerated to the downside once the July 13th low of 3.584 was taken out. This was the bottom of a two month long consolidation pattern that gave way in the direction of the major trend. The 14 day RSI is currently reading an extremely oversold 18.24, but has not yet shown any signs of reversing. 2.250 is seen as the next psychological support point for the October futures, with the 20 day moving average, currently near the 3.325 area, acting as resistance.

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Crude Oil Technical Analysis From PCIFX

From guest analyst Jena Cartter of PCIFX....

Crude oil attempted to decline again, whereas the key support level,currently at 67.00, is protecting the upside trend till now. For today, we expect an incline on the intraday basis, confirmed by breaching the resistance level at 68.75; initially targeting 71.50. It is vital that trading remains above 67.00 to maintain the upside movements expected for today.

The trading range for today is among the key support at 65.00 and the key resistance at 73.15.

The general trend is to the upside as far as 47.20 remains intact with targets at 85.00.

Support: 67.70, 67.00, 66.50, 65.25, 64.65
Resistance: 67.75, 68.70, 69.70, 70.35, 71.50

Recommendation: Based on the charts and explanations above our opinion is buying oil from 68.75 To 71.50 and stop loss below 67.70, might be appropriate.

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Oil Technical Analysis From PCIFX Monday August 17th

From guest analyst Jena Cartter at PCIFX

Crude oil declined, where we see the price trading below 69.15 level; which we can consider it a key resistance level for today that could cause more declines if the price can't remain above it. The stochastic is moving within oversold areas, as there are no current signs of adjustment to the upside whereas the RSI is trending to the downside making us expect a downside direction for today, targeting key support for the short term bullish channel at 67.10.

The trading range for today is among the key support at 63.40 and the key resistance at 73.55.

The general trend is to the upside as far as 47.20 remains intact with targets at 76.25.

Support: 68.35, 67.70, 67.10, 66.30, 64.10
Resistance: 69.15, 70.40, 71.50, 72.25, 72.75

Recommendation Based on the charts and explanations above our opinion is selling oil from 69.10 To 67.10 and stop loss above 71.50, might be appropriate



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Energy Market Technical Analysis from PCIFX

Crude oil price surged to as high as 72.21 after the Eurozone's GDP in 2Q09 showed much smaller contraction than previously anticipated. However, the benchmark contract trimmed gains as both US' retail sales and jobless claims disappointed the market. The gauge finished the day at 70.52, +0.5%.

While heating oil added +0.6% to 1.9, gasoline price dropped -0.3% to 2.02. Natural gas lost -4.1% to close at 3.34 despite lower-than-expected increase in gas supplies. US retail sales declined -0.1% mom in July, worse than consensus of +0.5%, after rising +0.8% in the prior month. The figure was very disappointing this was already helped by the government's 'cash for clunkers' program. Excluding auto, the regains plunged -0.5%, following a gain of +0.5% in June.

Initial jobless claims rose to 558K in the week ended August 8 from 550K a week ago. The market had expected a decline to 540K. In fact, the result was not as bad as the market interpreted. Continuing claims dropped to 6.2M in the week ended August 1 from 6.3M in the prior week while insured unemployment rate declined to 4.7% from 4.8%. These suggested the employment condition has improved.

Natural gas storage increased +63 bcf to 3152 bcf in the week ended August 7. This was lower than market expectation of +66 bcf. However, NYMEX gas futures still plunged to the lowest in 4 weeks. This was because supplies have increased +23% from the same period last year while the rise in storage has widened to 19.6% from 5-year average from 19.1% in the previous week.

The precious metal complex rose Thursday as USD declined. The gold futures climbed +0.4% to 956.5 while the silver contract soared to 2-month high at 15.15 before settling at 14.99, +2.8%. USD slid against major currencies as investors believed that weak US data would reinforce the Fed's stance to keep interest rate low for a long time. Moreover, the dollar plummeted against the euro as the 16-nation region's GDP in the second quarter contracted only -0.1% qoq, compared with consensus of -0.5%, after a sharp fall by -2.5% in the first quarter. There have been talks about risk appetite and dollar movement since the beginning of the year.

Seemingly, it's true for most of the time that risk aversion leads to rise in USD while increase in risk appetite leads to decline in USD. However, statistics tells us this is not always the case. More importantly, we have seen the opposite happened several times recently. For instance, better than expected non-farm payrolls data in June and August boosted sentiment and increased risk appetite. However, USD rallied, rather than plunged. This was because strong US economic data fueled speculations on Fed rate hike. In fact, risk aversion is not always USD-positive.

Overview:
Despite continued weakness in the US dollar and higher equity market crude closed near flat yesterday. This reluctance of the energy complex in reacting to the bullish guidance from financial markets could be interpreted with the EIA stats data. For weeks the supply/demand balance has been on the bearish side and in the face of increasing talks of a sooner than expected recovery in the US economy a respective significant improvement in crude demand is yet to be seen. And that's bound to make a few bulls nervous.

Technical Report:
We saw crude moving higher in early trading reaching an intraday high of $72.22 and it seemed the market is on course oh challenging last weeks high of $72.88 on Aug 7th. However the rally was followed by profit taking as bulls were not ready to stay in the market for too long pushing crude price back into negative territory. The session finished near flat with crude toying again with the 9 day moving average and technically remaining on a path of consolidation.

The short and medium term trends are bullish while the long term trend is bearish.

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