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Why the Nat Gas Rally Could Run Out of Gas

Natural gas has been ablaze. The commodity has doubled over the past eleven months, and just this week traded up to its highest level since September 2011.

So can the rally continue?

Well, one potential problem lies on the chart horizon.



Time and again, the market has reacted forcefully to the $4 level — which is just about where the market is trading now.

"There's a big war being waged at this level," said Addison Armstrong, senior director for market research at Tradition Energy. "There's a lot of bullish momentum in the market, but we've already had a very forceful move in nat gas."

So who will win the battle? Armstrong said the bears will take eventually assert control.

"The fundamentals call into question whether we can maintain these price levels," Addison explained. "Production is marginally higher than last year, and last year's production was a record. And while the market has tightened, we're still going to end the winter with 4 to 6 percent more natural gas in storage."

(Read More: Turkey May Block Use of Natural Gas for Cyprus Bailout)

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Seasonal factors are also at play, Armstrong said. "It's very normal to see natural gas sell off into the spring," Armstrong noted. All in all, he said that a ten percent pullback would be very likely, while an even steeper 20 percent drop wouldn't surprise him.

Jim Iuorio, of TJM Institution Services, agreed with the bearish call.

"Natural gas is going to have a difficult time here," he said. "The cold weather in the Midwest has already been discounted, and the chart has simply gotten steep. I think it's going to have a difficult time coming through this $4 level."

Jeff Kilburg of KKM Financial used one word to describe the trading in natural gas: emotional.

"Does it feel a little overextended up here? In our minds, it does," Kilburg said. "You've seen more emotion in this trade over the past month than we've seen in the past year."

Read on for 10 Things You Need to Know to Trade Futures

— By CNBC's Alex Rosenberg

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