by Nico Isaac
Updated: February 22, 2017
On February 21, natural gas futures plummeted 9.5% to a fresh three-month low. The decline was par for the downward course natgas prices have taken since late 2016, a slide that has seen the energy market shed 35% in value.
As for what's causing the market's meltdown? Well, according to mainstream sources, the biggest catalyst for the natgas nosedive is old man winter -- or rather, the lack of his appearance all together. Writes one news outlet:
"Natural Gas Bulls Crushed as Prices Tank... The winter of 2017 is turning out to be the second warmest on record. 'Mother nature continues to bearish, ultra-bearish. The utter lack of (heating) demand is, in my opinion, 99.9 percent of the natural-gas story.'" (Oilprice.com, February 22).
This winter has been warm, no question. But in our opinion, there's a lot more to the story -- namely, the fact that natural gas bulls have been crushed by a reliance on weather forecasts as a market indicator.
Check it out: In December, natural gas prices had soared 40% in less than a month. By Christmas, they stood at their highest level in two years. And, according to the major weather channels, 2017 was gearing up to be a frozen pipe-buster. Forecasts from New Mexico to New Hampshire called for "below-average temperatures," "multiple polar vortices," and a return of the "deadly cold of the 2013-4 winter."
This Farmer's Almanac 2017 Winter Outlook captures the expectation for Old Man Winter to return with a vengeance:
Right on cue, the natural gas pundits took these chilling forecasts and ran, all the way to bull town. Wrote one December 2016 news source:
"Natural gas prices pushed a three-week rally to a new high as cooler forecasts continue raising expectations for demand. Everything switched to colder. It's going up like crazy." (MarketWatch Dec. 5)
But that's not what happened. Since their late December peak at 3.994, natural gas prices, instead, went D-O-W-N like crazy in the 35% selloff.
Yes, the widely anticipated winter chill was replaced by a winter nil. But was there anything to suggest the selloff before the weather had changed?
Yes. The answer, as we see it, is investor psychology, which unfolds as Elliott wave patterns on a market price charts.
Taking it from the top, on December 29, our Energy Pro Service identified an ending five-wave advance on natural gas's daily price chart and warned prices were moving toward a significant top:
"A weak finish would also leave the market vulnerable to a gap down open when trading resumes in 2017... trade below 3.670 would open the possibility that Primary wave ((B)) is complete (ending with an anomaly from a continuation perspective). Confirming evidence should come with a break below February's 3.290 wave ((iv)) low -- particularly if five distinct legs are evident."
The next chart captures the natgas nosedive that followed, pushing prices to the three-month low of February 21.
Now, our Energy Pro Service explains whether or not natgas's mudslide is set to ratchet on down lower -- regardless of how the weather unfolds.
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