Counterintuitively, Nat Gas Technically Vulnerable Despite Bone-Chilling Temps

December 19, 2016 2:09AM CST

The wind chill in Chicago is -30-degrees (F) this morning, yet overnight's continued slippage in nat gas prices below Fri's low amidst further GAINS in our RJO Bullish Sentiment Index prompts us to reiterate Fri's Technical Blog that this market may be technically VULNERABLE to further and possibly steep losses.  The 240-min chart below shows the developing intermediate-term downtrend that, to this point, has unfolded into only a 3-wave structure from 09-Dec's 3.777 high.  However, a recovery above Thur's 3.589 smaller-degree corrective high and our short-term risk parameter remains required to CONFIRM this setback as a 3-wave and thus corrective affair consistent with a broader bullish count.  In lieu of such 3.59+ strength there is no way to know that the resumed decline from Thur's high isn't the 3rd-Wave of a broader reversal lower.

Natural Gas 240min

Natural Gas Daily

Complicit in a broader peak/reversal-threat count is the market's gross failure thus far to sustain early-Dec's rally above 18-Oct's prior key 3.675 high as well as the prospect that the rally from 09-Nov's 2.722 low is a complete 5-wave Elliott sequence as labeled in the daily log scale chart above.  However, the most damning evidence of a broader peak/reversal environment is our proprietary RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC shown in the weekly log active-continuation chart below.

At a whopping 70% reading reflecting 276K long positions to just 117K shorts shown at the bottom of our CFTC page , this market sentiment index hasn't been this high and frothy since that that warned of and accompanied Feb 2014's major peak and reversal.  And now that the market has rendered sentiment an applicable technical tool by breaking the recent uptrend with a bearish divergence in momentum that has defined TWO objective risk parameters to bearish decisions at 3.59 and 3.777, this extent to which the Managed Money contingent has its neck sticking out on the bull side is considered fuel for downside vulnerability that could indeed be extensive .

These issues considered, at least a cautious bearish policy and exposure are advised from the 3.40 level OB with strength above 3.59 sufficient to threaten this call enough to warrant moving back to the sidelines.  In lieu of such 3.59+ strength further and possibly surprising losses are expected with former 3.45-to-3.50-range support considered new near-term resistance.

Natural Gas Weekly

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