Natural Gas Averages Signal Price Decline: Technical Analysis

2009/07/30

By Jenny Gross

July 30 (Bloomberg) — Natural gas futures, which fell to a two-week low yesterday, will move lower as the price has dropped below the 10-day and 40-day moving averages, according to a technical analysis by MF Global Ltd.

Natural gas for August delivery declined 15.6 cents, or 4.4 percent, to settle at $3.379 per million British thermal units on the New York Mercantile Exchange, the lowest close since July 15. The August contract expired yesterday. The 10-day moving average is $3.629 and the 40-day average is $3.724.

“It’s becoming increasingly harder with each passing day for the low of $3.155 to be challenging,” Michael Fitzpatrick, a vice president for energy at MF Global in New York, said in a telephone interview. “We’re already below the $3.63 barrier.”

Natural gas fell to $3.155, the lowest in more than six years, on April 27, then climbed to $4.575 on May 13 before declining again.

If there is a rally toward $4, $3.63 may be the base for another slow advance, Fitzpatrick said. “We could also get a period where we go sideways and grind higher and higher.”

Natural gas closed above both the 10- and 40-day moving averages on June 19, then stayed below at least one of the averages until July 22. It has closed below both averages every day since then.

Moving averages are an indicator used by some technical traders to make buy and sell decisions.

Mild weather, weak prices, quiet tropical activity and record high inventories may prevent a potential rally of gas prices, according to MF Global. Only a sustained heat wave or hurricane would reverse these conditions, Fitzpatrick said.

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