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Schork Oil Outlook: NatGas Bulls Face Extreme Volatility

Last week, for the first time since the week ending February 5, natural gas prices closed higher. The 5.5% rise was modest considering prices are 25.9% lower since the start of February, but at this point the bulls will take what they can get.

Unlike previous weeks when prices crashed below the lower bound of The Schork Report's Confidence Interval (CI), implying downward trend, Friday’s close of 4.086 was actually above last week’s (3.742, 4.007) 65% CI. This is encouraging, but we will need to see prices close near or above the upper bound of this week’s (3.652, 4.572) CI.

The bulls may be facing an upward battle here, prices have moved by an average of 5.3% a week since the start of the year. A 5.3% increase would place this week’s settle at 4.290, well below the upper bound. However, if the bulls do break our bound, it is a very positive signal. Then again, the bears have been in charge of the market for two months and may still be, especially if Wall Street continues to buy crude and sell gas.

Tech stats for traders looking further out: the average CI for 2010 has been revised from (3.444, 5.322) last week to (3.572, 5.721) as of today. Meanwhile volatility is down slightly, from 43.9% to 42.9%, but much of this is due to the April contract expiring and the May (with several weeks until expiry) taking over.

As far as this week goes, strength above the week ending March 26’s 4.222 pivot leads to our 4.311 inflection high. Sustained strength here is likely to run in to resistance around our 4.537 intra-week. Then again, natural gas is becoming extremely volatile, so it is equally likely that a drop below last week’s 3.984 pivot low leads to our 3.861 lower inflection point. Once crossed, the bears should claw to The Schork Report’s 3.635 intra-week.

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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.