Natural Gas Price Prediction – Prices Surge as Hedge Funds Continue to Cover

Natural gas prices surged higher on Monday climbing nearly 4% after rising 5.25% for the week. Short-covering by funds should continue. The weather is expected to remain cooler than normal through most of the eastern portion of the United States over the next 6-10 and 8-14 days, but be warmer than normal throughout most of the west coast. There are current no disturbances in the Atlantic or Gulf of Mexico that are a threat to infrastructure.

Technical Analysis

Natural gas prices rallied nearly 4% on Monday. Prices surged through the October highs at 2.73, gapping higher and closing above a downward sloping trend line. The next level of target resistance on natural gas prices is the September highs at A break of that level could lead to a test of the March highs at 2.89. Support, is seen near the former breakout level near 2.73 and then the 10-day moving average at 2.59. Short term momentum is positive as the fast stochastic generated a crossover buy signal in overbought territory. The current reading on the fast stochastic is 95, well above the overbought trigger level which could foreshadow a correction. Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices.

Hedge Funds Remain Short

Hedge fund traders reduced some of their short position in futures and options and added to longs, but remain exposed to a short-squeeze. According to the most recent commitment of trader’s report released for the date ending October 29, 2019 managed money reduced short position in futures and options by 21.5K contracts while increasing long positions in futures and options by 11K contracts. The current net short position at 299K contracts is nearly 3X the open interest that is short futures and options, providing the backdrop for a short-squeeze.