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Natural Gas: A Tug of War between the Bulls and Bears

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Emergence of inverted head and shoulder pattern

NYMEX-traded May natural gas futures show a potential inverted head and shoulder pattern within the downward channel. Cold weather estimates have been driving natural gas prices for the last two days. Cold weather and the EIA’s (U.S. Energy Information Administration) inventory data, due today, will be the key catalysts for natural gas prices.

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Key pivots

The estimates of rising inventory and long-term, sluggish demand from industrials will put pressure on natural gas prices. The nearest support at $2.50 per MMBtu (British thermal units in millions) could be tested. Prices hit this mark multiple times in April 2015. In contrast, demand from electric power plants and cold weather would push natural gas prices higher. Prices could hit the resistance at 2.75 per MMBtu. The resistance is formed from the highs of March 26, 2015.

Gas prices settled below their 20-day moving average of $2.61 per MMBtu yesterday. The inverted head and shoulder pattern, downward channel, and cold weather could spike natural gas prices higher. In contrast, record inventory levels could fuel the sentiments of the oversupply market and drag gas prices lower. The markets will determine whether the bulls or bears win in today’s trade. However, the long-term trend for natural gas is bearish.

Gas price fluctuations impact the performance of gas ETFs like the VelocityShares 3X Long Natural Gas ETN (UGAZ) and the United States Natural Gas Fund LP (UNG). Energy producers like Sand Bridge Energy (SD), Noble Energy (NBL), and Stone Energy (SGY) have a natural gas production mix that’s greater than 50% of their total production. They will gain due to rising natural gas prices. These stocks account for 3.49% of the Spider Oil and Gas ETF (XOP).

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