Tuesday’s natural gas market gapped to the upside, displaying hints of strength, but, unfortunately, it collapsed nearly quickly. Now that the void has been filled, we must determine whether we are going to build a solid foundation or simply disintegrate. I anticipate that there will be some bouncing around in the near future, especially since the $5.00 level is right below and is a psychologically significant milestone. If we were to break below the $5.00 mark, then much deeper selling would be possible. I do believe that something occurs someday, but I do not necessarily believe that it occurs at this time.
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In other words, I like the concept of fading rallies because, now that the Freeport terminal is operational, the world will have access to significantly more LNG, hence increasing the available supply. The situation was caused by the self-inflicted lack of resources in regions like Europe. The Asians continue to purchase a substantial amount of LNG from the United States, which is customary. Honestly, there is nothing novel about that.
Rallies at this time will be opportunities to short this market on signs of tiredness, as we are now focusing on February, which means that we will soon be focusing on March. The March contract represents the beginning of spring, and hence, traders will begin to anticipate warmer weather and a corresponding decrease in demand. In addition, global economy is tumbling off a cliff, which suggests that industrial demand will also decline.