Decoding Natural Gas Trends: Bulls vs. Bears in a Tug of War

Natural Gas Forecast Video for 26.01.24 by Bruce Powers

Natural gas rallies to a high of 2.88 on Thursday and completes a 50% retracement. Resistance was encountered around that high leading to a sharp intraday selloff that took natural gas back down. The rally busted through all the moving averages (20, 50, 200), as well as the uptrend line before reaching the 50% level. During the decline there was little sign of support around the moving averages or any level for that matter until the area around the low from four days ago was reached, leading to a minor bounce.

Rally Earlier in Day Gives Way to Selling Pressure

Yesterday, natural gas recognized the 200-Day MA as it closed slightly above it. Despite the opportunity to close in a position of strength it looks like it is going to end today’s session in a weak position and continue the uncertainty about what might come next. There is argument for both the bull and bear side of the outlook.

Today’s bounce busted through several price levels with little hesitation. However, the subsequent bearish intraday reversal negated those bullish signals as natural gas is set to close below the 200-Day MA, a key trend indicator, leaving the bears in charge. By chance, if it can strengthen before the close and end above the 200-Day line, now at 2.67, it might have a chance to recover more of today’s decline over the next few days.

Bearish Perspective

Since last February’s 1,987 low natural gas has been working on either completing a bottom or a bearish continuation pattern. More recent price behavior is supportive of the bearish possibility. A sharp decline of at least 72% preceded the 1,987 bottom and it was followed by a multi-month ascending parallel trend channel.

Together, the preceding decline and parallel channel set up a bearish flag pattern. That pattern triggered on November 27, and it was followed by a test of the channel as resistance on a rally following the December 13 swing low at 2.36. That rally eventually failed and led to a second swing low at 2.31 earlier this week. If this week’s rally fails to recover above today’s high there will be a third recent lower swing high recreated, which reflects underlying weakness.

Bullish Perspective

For the bullish side, a breakout of the long-term downtrend line triggered in early October, and it was followed by two tests of the line as support. Arguably, the most recent was this week’s low, although it is not yet clear whether that low will stick. Similar price behavior was seen regarding the 200-Day MA. A breakout triggered in late September, but a successful test of the line has not happened. This is why if it does happen (close above today for example or tomorrow), it should be a short-term bullish indication.

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