Analyzing Natural Gas: Retracement Levels and Underlying Demand Signals

Natural Gas Forecast Video for 26.05.23 by Bruce Powers

Uncertainty prevails in natural gas as Thursday is on track to complete an outside day in the red. Earlier in the session natural gas managed to rise near term resistance marked by the 20-Day EMA at 2.40 and the three-day high at 2.42. Unfortunately for the bulls, natural gas looks like it will close weak, near the lows of the day and near or below the lows of the prior two days.

Retracement Completes 61.8% Fibonacci Retracement

Natural gas hit a low of 2.26 today and it completed a 61.8% Fibonacci retracement at 2.28. Since today’s attempt to rally got smacked down, a drop to the 78.6% retracement zone at 2.17 is looking more likely before the correction is complete. A drop below today’s low triggers a continuation of the decline. Nonetheless, the potential support area of the 78.6% retracement and the uptrend line is a significant area. If natural gas is going to have a chance of turning back up, it should find support around this price zone.

Lower Targets from Declining ABCD Pattern

Given today’s short-lived rally, there is now a declining ABCD pattern developing. It reaches its initial target at 2.07, just below the short uptrend line. That is where the CD leg will match the AB leg as far as the change in price. The higher 78.6% target is just below the 78.6% Fibonacci retracement and further strengthens the potential support of that price area.

Signs of Underlying Demand

Although natural gas is in a correction there are signs of underlying demand. There has been a bullish reversal on the monthly chart for April. An additional sign of strength occurs if May closes above last month’s high of 2.53. Further, recently natural gas rose above the 50-Day EMA for the first time since December, then closed above it on two out of three days. This type of price behavior is bullish. Price behavior around the 50-Day line indicates that that market is recognizing the line. Over the past it has been tested as either support or resistance on eight out of the last nine days. Therefore, keep an eye on it. A bullish signal is triggered on another breakout above the 50-Day EMA.

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