Technical Sunday - natural gas futures

Mike Zaccardi, CFA, CMT

As a technician, I like to see what the charts are saying as opposed to reading every headline that’s out there. Charts don’t lie, people do. So what are the charts saying about natural gas futures?

Let’s begin with the long-term in mind. I often like to start big and focus small.

The long-run chart of the continuous prompt-month contract of natural gas futures shows solid support when price gets near $1.50. It’s remarkable, in fact, how tough it has been for traders to drive prices beneath about $1.50.

The spring contracts of natural gas made fresh 25-year lows earlier this year, and here we are again with the June contract. June 2020 natural gas actually made an all-time low last week when it crept down into the $1.50s.

So we have established that the $1.50s seem to be a support zone. But what about resistance?

$3 and $5 are may be tough areas to break above looking out a couple years. Nearer-term, $2 provides its own issues for the bulls. These are also ‘psychological’ technical areas of resistance – round dollar amounts have proved to be more significant than random in historical studies on charts.

With a seasonal commodity like natural gas, it’s important to understand that winter contracts naturally trade at a premium to other months of the year. More natural gas is burned for electricity use during the winter while the summertime features more gas used for power plant generation, but total demand is less in the summer versus winter.

So it’s easy to make bullish predictions during the spring and fall in advance of higher demand (and higher pricing) periods. In reality, some price changes are just due to the more expensive winter contracts moving to the front-month.

Overall, near-term prices have been under pressure from demand impacts of COVID-19 while winter 2021 trades not too far from it’s 2-year high just above $3 on January 2021.

Chart via Follow me on twitter @mikezaccardi