March futures have a clean shot at continuing the rally with the daily chart showing no resistance until $4.326. The key into the close today is how will traders react to the pivotal 200-day moving average. Continuing to establish support on this moving average will indicate there is a buyer in there propping up the trade. If the moving average fails to hold, prices could drop quickly into 50% level at $3.452 and the 50-day moving average at $3.433.
February-March Spread Signals Short-Term Weather Event
The wide February/March spread shows that traders are expecting the destructive weather, half the US is experiencing, to be short-term event. Not only did the severity of the frigid temperatures catch short-sellers by surprise last week, it also reminded traders that winter isn’t over yet and that these polar vortex situations can show up at any time until winter is actually over.
After the February futures contract goes off the board on January 28, the March contract will become the front month and traders will carefully watch its performance. I do think traders will price in a weather premium because, let’s face it, the market was oversold by hedge funds and money managers and when the weather shifted to severe cold for the East Coast, they had no choice except to pay anything just to get out. This in turn led to increased momentum, bringing in the speculators who drove nearby prices to their highest levels in four years.
Seven-Day Forecast: Extreme Cold Persists
NatGasWeather is predicting that “overall national demand will remain extremely high over the next seven days. They see a twofold weather matter. Currently, we are experiencing phase 1, which is bringing dangerously cold air across much of the Midwest, Plains, and East with lows of -20s to 20s, highs of 0s to 30s. This includes lows of 0s to 20s into Texas, the South and Southeast the next couple days.”
Second Cold Blast Expected Friday
The kicker is, just when you thought it was getting warmer, another shot of subfreezing temperatures are predicted for Friday.
Market Outlook: Volatility with a Price Floor
Continue to look for volatility over the near-term as this storm system subsides, only to be followed by another. Traders are already looking at the 10-15 day forecast, which predicts more cold temperatures but not as severe, for the first half of February. Therefore, we may not see many major price spikes, but we will see a price floor.
