The natural gas market was caught in a technical "grand slam" and prices could go lower, according to energy analyst Mike Fitzpatrick, who is editor of the Energy Overview newsletter.
"You've got everything going for it in the technicals to move lower. You have the market below three major moving averages - the 10- , 40- and 200- day. About a week ago, the 10-day went under the 40-day. That was further confirmation, and on top of that, you have the market below the pivot point," he said. The pivot point it went through Thursday was 4.041, he said. Earlier in the week, it fell through 4.2275, setting up the "grand slam."
Fitzpatrick also said it's a bearish sign that natural gas closed under $4, a level last seen in November. Natural gas for March delivery Thursday fell $0.058, or 1.4 percent to $3.986 per million BTU's. "That is a big psychological point. That should challenge 3.951 pretty quickly," he said, noting the next support level would be between 3.60 and 3.80.
"If we get down there, with five weeks remaining in the heating season, that looks really bad and you might even have a challenge to $3," he said.
Earlier Thursday, the Energy Information Administration reported that domestic gas inventories fell last week by 209 billion cubic feet to 2.144 trillion, a greater than expected decline. Yet, the market still moved lower after initial gains.
"It will ultimately be oversold and the market is vulnerable to a violent short covering bounce," Fitzpatrick said, adding that new shorts keep coming in.
"During this last run down, the open interest has increased by 65,000 contracts, which means there's new shorts being opened...you have a structurally poor fundamental situation. You have overproducing, not only form shale gas but he excess number of rigs operating," he said.
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