Must See Charts: Natural Gas Futures on a Tear

NEW YORK ( TheStreet) -- Natural gas futures have been on a tear in recent weeks. The market has been trending higher on a steep angle but it is now showing signs of cracking.

I think many people have been wondering just how much natural gas has left in the tank. Although the market is trading well off its 2013 lows, the fact is that the market remains very well supplied.

Now don't get me wrong -- I think the future for natural gas looks good. That being said, trading should not be based on trying to predict the future, but rather trying to take advantage of what price is doing -- nothing more.

I am a big fan of trading chart patterns and have found them to be very useful. In terms of the current natural gas market, I do not intend to go into great detail about the market fundamentals. Fundamentals don't pay -- price does.

Looking at the June natural gas futures contract, it appears to me that the market is putting in a double top. This is generally considered a reversal pattern, and in this case it could be a bearish topping pattern and at times can provide potentially good trade signals.

Courtesy of QST

Regardless of what one may think of the market fundamentals, the laws of supply and demand are at work. Currently, in my opinion, there is more supply than demand.

So how does one play the potential downside in natural gas prices? Well, there is no simple answer to this question.

One could simply get short futures, short calls, buy puts, or do a combination of the three. Every trader is different and these decisions should be made based on a traders account size, risk tolerance, and trading style.

I believe the potential is there for a decent downside move which could take us back to the $3.88 area or lower. Please feel free to contact me to discuss any questions that you may have or to discuss how to structure a trade based on your market views.

Futures and options trading is inherently risky and unsuitable for all investors. Past performance is not necessarily indicative of future results. Stop-loss orders intended to limit losses to certain amounts may not be effective because market conditions may make it impossible to execute such orders.

Commodity Futures Trading Commission disclosure for licensed brokers: This material is conveyed as a solicitation for entering into a derivatives transaction.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Matt Zeman is a trader at Kingsview Financial. He began his trading career as a runner in the grain pits at the Chicago Board of Trade before becoming an arbitrage clerk. Eventually he started trading equity options and stocks. Matt now is a full-time futures broker and also authors a blog for gold investors at Appreciate Gold. He has been a frequent guest on CNBC, Fox and Bloomberg, and provides his views on the stock, bond and futures markets for financial media including Dow Jones, the L.A. Times and The Associated Press. Matt is a member of the Chicago Board of Trade, and carries series 3, 7 and 66 licenses.

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