Thursday, April 3, 2014

Keep your eye on natural gas

By Erik Tatje

Natural gas (NYMEX:NGK14)

After peaking in late February, the natural gas market has been trending lower via lower lows and lower highs on the chart. After a sharp sell-off to start the month of April, price rallied yesterday to take back a majority of ground that was lost on the April 1. However, despite yesterday’s strength, price was unable to hold above the Fibonacci Confluence Zone from 4.360 – 4.384 and has since rejected from this area. This rejection also corresponded with an extreme overbought signal in the RSI indicator, confirming a potential sell opportunity from this area.

Following the rejection, price appears to want to trade lower as both near-term momentum and the intermediate-term directional bias are both bearish. The next level of support below price is 4.264 followed by the 4.195 – 4.216 area, which held up the market early yesterday morning. Below the 4.195 level, there is not much in the way of technical support to hold up this market so look traders should be mindful of this as further downside follow-through is a very real possibility. As long as price remains pressed below the 4.360 – 4.384 Fibonacci Confluence Zone, the probabilities appear to favor short positions in natural gas. Keep in mind that there is an EIA Natural Gas number set to be released at 9:30 am CST.

Corn (CBOT:CK14)

Despite pulling back to support at 492’6, May corn still appears strong from a technical standpoint and further gains appear to be in store for the corn market. Monday’s report highlighted a smaller than average crop with planting acreage also coming in slightly below average, both of this favor higher corn prices. Couple this with concerns of whether or not farmers will be switching from corn to soybeans as a result of the brutally cold winter, and there appears to be some solid evidence to support corn prices at these levels. From a technical standpoint, a sustained move above 500 today would certainly support a longer term bullish argument for corn, as well as new highs above Tuesday’s 512’4 peak.

Price appears to have respected the initial support pivot at 492’6; however, any further weakness below here could find additional support around the 484’0 – 485’0 area on the chart, as this band includes both the intersection of an intermediate trendline and a 38.2 % retracement of a previous price range. Intermediate-term directional outlook remains bullish above the 475’0 low and near-term momentum appears to be sideways to slightly positive above 492’6. If corn prices can close back above 502’4 today, then an argument could be made for additional upside follow through to close out this week and carry over into next weeks’ trading.

Yen (CME:J6M13)

The yen broke through a significant support level at 9640 yesterday, which could ultimately spark a new wave of selling pressure in the foreign currency. Yen futures are now trading at their lowest level in two months and the recent break below 9640 confirms the underlying weakness in this currency. Both the intermediate-term trend and short-term momentum favor the bear campaign and selling corrective rallies into support appears to be a high probability strategy to implement given the current market environment.

It is curious that the RSI is showing a bit of bullish divergence at these levels, as new lows in price remain unconfirmed by lower lows in the RSI. This could be an early indication of a corrective rally in the near futures, so traders should keep this in mind when assessing how to play this market. If this scenario does play out, consider using 9640, 9657 and the 9676 – 9685 range as potential resistance targets which could put an end to any upside correction in the yen. All things considered, the underlying tone of this market is negative and opportunity at the current time appears to favor the short side of the market.

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