Lower gas prices once again create profitable buying opportunity

Following a sharp increase in US natural gas (NG) prices, there was an equally strong decline. Since quotes reached a 3-year high of $5.2 on December 5, they have dropped by almost 30%. However, the commodity found support as it approached the 61.8% Fibonacci retracement at $3.7 and the 100-day moving average on Tuesday. Yesterday’s 4% rebound could signal profit-taking on short positions at these levels.

The Stochastic Oscillator has recently entered the oversold zone for the first time since mid-October, with its lines suggesting the potential for an upward reversal. As for the RSI Indicator, it couldn’t be called bullish, but it is stalling in neutral territory. During yesterday’s trading session, prices rebounded, hitting the 50% Fibonacci retracement at $4. The next target will probably be the 38.2% Fibonacci level at $4.3.

There has been a noticeable warming trend after most of the United States was hit by freezing temperatures in late November and early December. As a result, the rally in the NG market has slowed. But by the end of this month, cold snaps could return. Another not-to-miss factor is decreased US fuel inventories. Recent frosts reduced the surplus from 4–6% (according to November’s estimates) to only 1%.

Today’s US natural gas storage data are high on the agenda, as they will confirm or refute current dynamics. Market participants expect fuel reserves to have fallen by 176 billion cubic feet (bcf) over the past week. This is nearly double the average historical mid-December inventory drawdown of 96 bcf. Even with relatively warm weather, liquefied natural gas (LNG) exporters are keeping up consumption. Reuters predicts that December overseas shipments of LNG will set a new record, beating November's result by 2.2%.

Take a look at the following trading strategy:

Buy natural gas at the current price. Place Take profit at $4.3 and Stop loss at $3.7.