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December Natural Gas Bounces Off Long-Term Support

11/18/02 11:37:35 AM
by Kevin Hopson

December natural gas (NGZ2) has seen a sharp sell off over the last few weeks, as weakness in the crude oil futures market has weighed on prices. However, the contract successfully tested key long-term support in the $3.72 to $3.76 range last week.

Security:   NGZ2
Position:   Buy

As you can see in the chart below, the $3.72 to $3.76 range is the site of August's correction and September's low. Coupled with the contract's 200-day moving average, which currently resides at $3.81, this area of support was considered significant.

As chance would have it, December natural gas successfully bounced off support here last week and has now broken to the upside. More specifically, the contract broke a double top in the $3.94 to $3.96 range last Friday, giving a short-term buy signal in the process. Though December natural gas bounced off the 38.2 percent retracement level ($4.03) from October's high to November's low last Friday, this was labeled as minor resistance, the reason being that there were no other technical resistance points close to this price level.

Graphic provided by: SuperCharts.
Being the case, it was no surprise to see December natural gas rally on Monday, as the contract easily overcame the 38.2 percent retracement level from the October-November sell off. If December natural gas can close above the $4.12 level, site of the 50 percent retracement from the October-November sell off and the contract's 50-day moving average, this would be very bullish. Additionally, a break of key resistance at the $4.21 level, site of the 61.8 percent retracement, could lead to a longer-term price target of $4.34. This is currently the site of the contract's downtrend line from October's high.

Kevin Hopson

Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.

Glen Allen, VA
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