A rebound in gas prices is imminent

Gas prices in the U.S., according to the previous forecast, have reached the $3 round level. In fact, gas has fallen in value by almost 60% since mid-December, making great returns for traders with short positions. And reaching the $3 level proved to be a good reason to take profits on short positions. So, the price started to rally, leading to yesterday's rebound of more than 8%.

Last night's rebound, the highest since early November (in percentage terms) took place not only due to profit lock-up by the "bears". Officials at the Freeport LNG export facility said that maintenance operations at the plant have finally been completed, meaning all that is left now is to get regulatory approval to begin exploitation.

LNG exports from Freeport are unlikely to start before the end of January, although a relaunch date, for instance in the first half of February, could encourage short position holders of gas futures to close them sooner or later. Given the fact that gas shorts in the U.S. have climbed to their highest level since March 2020 as of last week, shutting down even a small fraction of them may trigger a strong upward price momentum.

Weather conditions could also be another contributor to the gas price spike. The cold snap in the U.S. and Europe has already begun, and some provinces in China have even set minimum temperature records. There is no guarantee that the cold snap is going to be long-lasting, but taking into account the scale of the previous gas price crash, any slight upturn in demand is likely to push prices higher.

The Stochastic indicator sends a buy signal, being near the oversold zone, which strengthens chances for a rebound in gas prices. There is a list of potential growth targets, but let's stop at the closest one, i.e. the level of 3.5.

The following trading strategy can be suggested:

Buy gas at the current price. Take profit - 3.5. Stop loss - 3.1.

Traders may also use Trailing stop instead of a fixed Stop loss at their discretion.