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Thursday, January 26, 2023

Natural Gas: Should You Risk Catching a Falling Knife?

 

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A steep slide in the natural gas futures since Dec.19 was a nightmare for traders as most bulls got stuck between $6.4 – $7 levels after a sudden surge in prices from the lows of $5.343 on Dec. 6 to Dec. 12, 2022.

Natural Gas: Should You Risk Catching a Falling Knife?Natural Gas Futures Daily Chart

The prices continued to face stiff resistance at $7.059 from Dec.12 to Dec.15, 2022, before starting to melt down from Dec. 16 after testing day’s high at $6.9.

Finally, this slide worsened after the announcement of the EU’s gas price cap mechanism last Monday.

Amid concerns over the success or the failure of this gas price cap mechanism, traders look reluctant to take new long positions at this time.

This could make this slide worse as, despite the official arrival of the winter, demand for natural gas is still not up to the mark as it should be at the time of freezing weather before Christmas.

I predicted this fall well in advance while writing my last analysis. The current price fall looks like a replica of the slide from Oct.17 to Oct.21, 2022, before a sharp reversal on Oct. 22, 2022.

A steep reversal could start from Dec. 27, 2022, as the natural gas futures are trading in the oversold zone.

I believe the base for this reversal could again be the same from $4.752 as it was on Oct.22. The short-covering rally could start any time, as the natural gas futures have slid more than 23% since then.

No doubt, you will risk catching a falling knife at this point, but the natural gas futures could find a base at $4.7 before a steep reversal.

Disclaimer: The author of this analysis does not have any position in Natural Gas futures. Readers are advised to take any position at their own risk, as Natural Gas is one of the most liquid commodities in the world.

Source: Investing.com

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