Nat Gas Finishes Week With Reversal Bottom, but was the Buying Real or Short-Covering?

September Natural Gas futures followed through to the upside on Friday after posting a closing price reversal bottom the previous day. The market also finished with a potentially bullish weekly closing price reversal bottom at $2.743, up $0.15 or +0.55%.

The catalyst behind the rally was government data that showed U.S. natural gas inventories grew less than expected the week-ending July 15. The U.S. Energy Information Administration reported last Thursday that natural gas stockpiles grew by 34 billion cubic feet the previous week, compared with the 38 bcf expected by forecasters.

The main trend is up according to the daily swing chart. However, momentum has been to the downside the last three weeks.

LONG-TERM ANALYSIS

The main range is $3.223 to $2.009. Its retracement zone is $2.616 to $2.759. The 50% level at $2.616 provided support last week when the market rallied from $2.591. At the end of the week, the market was testing the upper or Fibonacci level of the range at $2.759.

The short-term range is $2.009 to $2.990. Its retracement zone at $2.500 to $2.384 is the next downside target.

Based on Friday’s close at $2.743, the direction of the market this week will be determined by trader reaction to the Fibonacci level at $2.759.

A sustained move over $2.759 will indicate the presence of buyers. The daily chart is open to the upside with the next long-term downtrending angle coming in at $2.979. This angle stopped the market the week-ending July 1.

A sustained move under $2.759 will signal the presence of sellers. This could lead to a break into the uptrending angle that helped stop the break last week. This angle moves up to $2.649 this week. This is followed closely by the main 50% level at $2.616 and last week’s low at $2.591.

Taking out last week’s low will likely lead to a test of the short-term 50% level at $2.500.

SHORT-TERM ANALYSIS

Another short-term range is $2.195 to $2.990. Its retracement zone is $2.593 to $2.499. Its 50% level at $2.593 provided support last week when the market reached its low at $2.591.

Another range has formed between $2.990 and $2.591. Its retracement zone at $2.791 to $2.838 is the primary upside target. Traders have to watch the price action inside this zone because aggressive counter-trend sellers are going to try to form a potentially bearish secondary lower top and bullish trend traders are going to try to drive the market through this zone.

Based on Friday’s close at $2.743, the direction of the market is likely to be determined by trader reaction to the steep downtrending angle at $2.734.

A sustained move over $2.734 will indicate the presence of buyers. This could create enough upside momentum to challenge the short-term retracement zone at $2.791 to $2.838.

The resistance becomes labored on a trade over $2.838 with potential resistance angles coming in at $2.862, $2.926 and $2.958. The latter is the last potential resistance before the $2.990 main top.

CONCLUSION

Combining the long-term and short-term charts reveals that the main support this week is clustered at $2.649 to $2.616 and $2.593 to $2.591.

There won’t be a rally unless buyers can sustain a move over the major Fib at $2.759 and even if they do, they have to take out the retracement zone at $2.791 to $2.838. This area will decide whether we form a secondary lower top or if the move continues on to test the main top. It will also tell us if the buying is real or just short-covering.