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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (43461)	8/3/2006 3:22:44 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 71036

Technical Thursday: Hot Air Pumps Up Natural Gas Thursday, August 3, 2006 By George Leong Buyers beware, though, of overbought conditions Extremely hot summer temperatures across North America are placing a strain on the demand for cooling. The spike in natural gas prices comes as utility companies need to produce additional electricity in order to power air conditioners as mercury levels rise. On the chart, the surge in the basis September natural gas on the NYMEX comes on the heel of a bullish double bottom on the charts on July 10 and 18 when the price fell to the mid-$5.50 level. The price of natural gas has surged about 40% over the past two weeks and in the process, it has reversed the downward trend that was in place from mid-April to mid-July. The current near-term technical picture is relatively bullish characterized by rising Relative Strength and a bullish MACD as shown on the chart. But we could see some stalling on the chart as the strong buying has created an overbought condition, a sign of potential profit taking on the horizon. Taking a look at the degree or angle of the current surge, natural gas prices look overextended at this juncture. When prices rise at a trendline angle of over 45 degrees, you need to question the near-term sustainability of the increase. We could see some profit taking set in before a potential run to the $9 level, encountered previously in mid-April prior to the downtrend. Here is what I would look for in the upcoming sessions. The market is fundamentally driven by the weather. Continued hot temperatures could drive prices to a contract high at above $9.15. Seasonal trends suggest that the period from July to late October is bullish for natural gas futures. The chart below reflects the Ratio Adjusted Continuous Contract of natural gas futures over a 16-year period from April 1990 to December 2005. Note the peak in late October followed by the downtrend as year-end approaches, albeit there is a rebound in December. (Source: seasonal-charts.com On the upside, if prices can hold and trend higher, watch for resistance at the pivot points at $8.88, $9 and the extremely overbought level at $9.61. The 52-week high is $11.28. Natural gas prices could ultimately move higher but you also need to be aware of the current overbought condition. If prices fail to hold, watch for a pending retrenchment down to pivot points at $8.28 and $7.97, $7.45 and the 100-day moving average at $7.26. Failure to hold at these levels could see prices sink further to the 50-day and 20-day moving averages at $6.72 and $6.49, respectively. Natural gas is for aggressive traders because of its inherent volatility, one of the most volatile of all commodities. Strong and unexpected shifts in weather can drive prices wildly. Because of this, I view natural gas as an aggressive commodity to trade. You may be able to squeeze some short-term profits out of natural gas stocks, especially if the seasonal trend pans out. But don't forget the downside as prices are overextended at this time. Happy trading and see you next time! stockhouse.ca