Its official Crude oil and the products have moved lower putting in an interim top in the last two weeks…will natural gas follow suite? As I said in my piece yesterday Crude broke the up-sloping trend line that has been in place all of 2014 and lower trade looks likely. Futures found mild support at the 38.2% Fibonacci level today. While Crude oil futures are $5 off their highs, heating oil has fallen 10 cents and RBOB same.
Natural gas is lower only the last two sessions so to some extent we are picking tops which can be dangerous. Today the 8 day MA (orange line) was probed. I like the risk to reward dynamic putting on bearish trade at these price levels. Futures traders could be scaling into bearish trades with stops above the recent highs. I also have suggested bearish calendar spreads, short June and long December 1:1 in addition to various option plays. Today some of my clients executed July back ratio spreads trying to capitalize on a 30-50 cent break.
The move lower today was likely triggered by a larger than anticipated increase in supplies for the second week in a row. Producers added 82 billion cubic feet to storage. This inventory bump beat the 5-yr average by 24 bcf and is a testament on how quickly the US has been able to replenish its supply coming off the 11-yr low in inventory. The EIA reported that current stockpiles come in at 981 bcf. While I am not anticipating a bear market I do think we see a further retracement and view this as a trading opportunity.
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