NATGAS Short Squeeze on the Cards?

NATURAL GAS – INTEGRATED PREMIUM TRADING/INVESTMENT REPORT
(All data current as of Feb 21, 2025, unless otherwise noted. No major updates post-Feb 21. Any contradictory signals are flagged in context.)
1) EXECUTIVE SUMMARY

Natural Gas (NG) has shifted into a bullish structure on higher timeframes after a prolonged 2022 downtrend. Macro indicators suggest that while U.S. gas storage is somewhat below the five-year average, Europe’s inventories remain comfortable due to strong LNG inflows. On the positioning side, hedge funds are still net short, yet price has rallied significantly off sub-$2.00 levels—a textbook setup for a potential short squeeze.

Technically, NG shows a weekly uptrend with higher highs and higher lows, supported by strong momentum (price above long-term moving averages and Ichimoku Cloud). Lower timeframes (daily, 4H) remain bullish but reveal short-term consolidation around the 4.50–4.57 resistance zone. The biggest “conflict flag” is the gap between stubbornly high short interest and ongoing price strength.

Bullish Arguments
• Confirmed uptrend on weekly and daily charts
• Price trading above major SMAs and Ichimoku cloud levels
• Potential for a short squeeze if large net shorts unwind

Bearish/Contradictory Arguments
• Significant hedge-fund net shorts persist
• Mild European winter and stable US production could cap demand-driven spikes
• Price nearing technical resistance around 4.50–4.57
2) MACRO & MARKET SENTIMENT OVERVIEW

Global Macro Context
• US Storage: Most recent data showed weekly withdrawals leaving storage levels roughly 5% below the five-year average.
• Europe: EU gas inventories remain higher than typical for this time of year, thanks to increased LNG imports. That limits immediate winter crisis worries but does not fully remove upside price risks in case of abrupt cold or supply disruption.
• Speculative Positioning: Money managers continue to hold net short positions, indicating a degree of skepticism about sustaining higher prices. Still, the spot market has climbed off its lows significantly since early 2023, underscoring potential volatility if shorts unwind.

Conflict Flag: Persistent short positioning vs. a rising price environment suggests an unstable equilibrium—either further short covering fuels a continued move higher or renewed selling pushes NG lower if bullish catalysts fade.
3) ECONOMIC CALENDAR

Below are key dates/events over the next 1–2 weeks that could shape Natural Gas price action:
Date Event Potential Impact
Wed (Weekly) EIA Petroleum Status Report Can affect overall energy sentiment, though more relevant for crude. Minor spillover to NG possible.
Thu (Weekly) EIA Natural Gas Storage Report A surprise in weekly storage data can trigger strong NG moves.
Feb 29 (Fri) China PMI (February) Strong manufacturing may support global LNG demand; weak data might weigh on energy complex.
Next 1–2 Weeks Unscheduled OPEC+ or Russia updates Any disruption or policy shift in global energy markets can indirectly impact gas sentiment.
All references are based on last known data as of Feb 21. If these dates pass without new surprises, the market may focus on other factors such as weather or any unexpected LNG facility outages.
4) TECHNICAL OVERVIEW

Weekly Timeframe
• Market Structure: Transition from 2022’s downtrend to clear higher highs/lows in 2023. Price is above the 10, 50, 100, and 200-week SMAs.
• Ichimoku: Price is above the weekly cloud, with a bullish Tenkan–Kijun cross.
• Momentum: RSI near 70 (approaching overbought), MACD strongly positive, ADX around mid-30s indicating a strengthening trend.
• Key Weekly Support: ~3.00–3.30, a major pivot where strong accumulation previously took place.
• Key Weekly Resistance: ~4.50–5.00, historical supply blocks from the 2022 sell-off.

Daily Timeframe
• Trend: Continues forming higher highs/lows, price remains above all daily SMAs.
• Indicators: RSI around 60–65 (positive), MACD above zero, Bollinger upper band near 4.50.
• Support Levels: 4.00–4.10 (key pivot and volume cluster), 3.60–3.70 (bullish order block).
• Resistance: 4.50–4.57 area (recent swing high, Bollinger upper band).

4H & Intraday
• Short-Term Structure: Still bullish, though momentum has cooled below ~4.57.
• Momentum Indicators: 4H MACD rolling over near zero, RSI near 59–65.
• Key Intraday Levels:
• Support ~4.13–4.15 (recent local low). Below 4.00 would signal deeper pullback potential.
• Resistance ~4.50–4.57 (local supply).

No new price or indicator updates beyond Feb 21. Any significant market move after that date is not reflected in these technicals.
5) KEY LEVELS & CONFLUENCE
• Major Weekly Support: 3.00–3.30
• Daily/Intermediate Support: 3.60–3.70, 4.00–4.10
• Near-Term Support: ~4.13–4.15 intraday pivot
• Resistance: 4.50–4.57 overhead; if cleared, 5.00 becomes the next psychological barrier

Fibonacci extensions from the rally low (~1.90) point to 4.23–4.30 (already tested) and ~5.00 as a further extension if momentum continues.
6) TRADE SCENARIOS & FRAMEWORK

Bullish Scenarios
1. Aggressive (High Risk)
• Entry: Near 4.13–4.15 or a dip that reclaims 4.10 on short-term charts.
• Stop: Tight, below 4.00–4.05.
• Targets: 4.50–4.57 (T1), then 4.70–5.00 (T2).
• Rationale: Quick bounce play, potential short squeeze continuation.
• Risk: High whipsaw risk if support fails.
2. Moderate Risk
• Entry: 4H close above ~4.20–4.25, confirming renewed upside momentum.
• Stop: Below 4.00.
• Targets: Same T1 and T2.
• Rationale: Waits for short-term structure to turn clearly bullish again.
3. Conservative
• Entry: 4H or daily close above 4.45–4.50.
• Stop: Wider, below ~4.00.
• Targets: 4.57 (T1) then 5.00 (T2).
• Rationale: Ensures resistance is cleared, aligning with the dominant uptrend.

Invalidation: A decisive close below 4.00 on strong volume would undermine the bullish outlook.

Bearish Scenarios (Deeper Correction)
1. Aggressive (High Risk)
• Entry: Breakdown under 4.13 or a rejection at 4.40–4.45.
• Stop: Above 4.50.
• Targets: 4.00 (T1), 3.70–3.60 (T2).
• Rationale: Catch a short-term reversal if momentum stalls.
• Risk: Countertrend trade in a larger bullish market.
2. Moderate Risk
• Entry: 4H close below 4.13, confirming short-term structure break.
• Stop: Above 4.50.
• Targets: 4.00, then 3.70–3.60 if deeper selling unfolds.
3. Conservative
• Entry: Daily close under 4.00.
• Stop: Above 4.40–4.50.
• Targets: 3.70–3.60, potentially more if weekly uptrend truly unravels.

Invalidation: Reclaiming 4.50 on a closing basis would negate the bearish thesis and likely resume the broader uptrend.
7) RISK MANAGEMENT
• Volatility (ATR): Weekly ATR ~0.44, daily ATR ~0.25. NG can move swiftly, so calibrate stops and position sizes accordingly.
• Position Sizing: Consider risking only 1–2% of trading capital per trade, scaling out at interim targets.
• Data/Events: The EIA Natural Gas Storage report each Thursday often sparks volatility. Unexpected weather or LNG facility disruptions can also move prices quickly.
• Conflict Flags: Large net shorts in futures vs. rising spot price. Keep watch if short covering intensifies or if fresh sellers step in.
8) CONCLUSION & ACTION STEPS
• If price sustains above 4.00–4.10 and we see momentum pick up (e.g., a 4H close >4.25), then a retest of 4.50–4.57 is likely, and possibly up to 5.00 on a breakout.
• If price drops below 4.00 (especially on a daily close), then expect deeper pullbacks toward 3.70–3.60.
• Keep an eye on the weekly EIA data release and any abrupt weather or geopolitical shifts.
• Use prudent stops: Natural Gas is inherently volatile, so a balanced approach to position sizing and partial profit-taking is advisable.
Disclaimer: This analysis is for informational purposes only and not financial advice. All trading carries risk—exercise caution, maintain adequate stops, and stay updated on real-time market developments.