Early Signs of Strength in Natural Gas Fizzles Out

Natural Gas Forecast Video for 09.02.23 by Bruce Powers

Natural gas backs off following early signs of strength yesterday when it reached a four-day high of 2.66, just shy of a 78.6% Fibonacci retracement in the intraday 2-hour time frame. The 14-Day RSI momentum oscillator attempted to rise out of an oversold condition (below 30) but failed and has turned back down. It continues to trade inside week unless there is a drop below last week’s low of 2.34 or a rise above the 2.78 weekly high.

Price Holds Support for Now

A potentially significant support zone from 2.53 to 2.24 was reached last week and it has stopped the decline at least for now. That price zone is derived from a prior seven-month support range from late 2020 and early 2021. It also includes the 88.6% Fibonacci retracement at 2.42 and a large descending measured move at 2.33 (purple arrows).

With Wednesday’s price action being less than ideal for the bulls, the question of whether the downtrend will continue returns. Of course, a decline below last week’s low triggers a bearish trend continuation. We’ll have to watch price action closely at that point if it happens to see if downward pressure intensifies or not. More aggressive selling could lead to a sustained continuation of the six-month 76.7% (to date) correction.

May Be Setting Up for Next Week

It may very well be that natural gas finishes the week inside week. If that happens then an upside breakout, currently above 2.66, will provide a sign that price is rising and may keep going. At the same time, a breakdown below this week’s low, currently 2.36, will give a bearish signal for a possible continuation of the downtrend. If the downside is triggered, then next watch the reaction around 2.33 where the measured move completes. Following that, anywhere down to the low of the support at 2.24 could see support.

Rather than trending from here, either up or down, natural gas may trade sideways for a while as activity levels continue to die down and price consolidation prevails. However, that is not the usual reaction following a large correction in natural gas. In each of the past eight major corrections over the past 22 years, each reversed sharply off the bottom except one, and the results of the current correction remain to be seen.

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