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Natural gas inventories decline

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Within the past hour I got an upside alert on a tight alert I had set in the February Natural Gas futures (ng02g) contract that I had set to alert us to a potential move off the bottom in the natural gas commodity. Not long after, we uncovered the headline that today's American Petroleum Institute reported that natural gas inventories fell 5.14% or 137 bcf in the latest week, which was a larger decline than that forecasted for a decline between 105 and 115 bcf.

February Natural Gas Futures Chart - Daily Interval

Energy bulls may be interested in today's API report, but natural gas prices remain at low levels. My upside alert came from a rather small range of retracement, but today's 4% rise in natural gas prices is most likely a short-term relief to some natural gas producers. We've now got some levels in the commodity market to be monitoring going forward. Right now, I'd be a very cautious bull in this part of the sector, but we're now alert to why natural gas prices are doing what they're doing today. It may take a move above the $2.65 level to see some bullishness begin to prevail in natural gas producers and we'll keep an eye on things here.

If we start seeing some higher energy prices, then that may play into some of what we're seeing in the gold market on the inflation front.

One stocks that we've talked about in recent weeks with about a 50/50 production mix of oil/natural gas is shares of Apache (NYSE:APA). We liked the longer-term potential of that stock based on what could be the reverse head and shoulders pattern.

The February Light, Sweet Crude futures (cl02g) are quiet today and at unchanged levels of $18.90. Oil stocks seem to have shown more bullishness with oil above the $20 level.

Jeff Bailey
Senior Market Technician
Option Investor

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