Resistance Rejection Tests Bullish Setup
Natural gas failed another test of resistance near last week’s high of $3.03, advancing to a slightly lower high of $3.01 before sellers regained control. Sellers dominated much of the session, with natural gas falling sharply intraday, reaching a four-day low of $2.86 and briefly falling below support at the 50-day moving average. The result was a bearish outside day. However, support at the 50-day moving average ultimately held, as reflected by the close back above the average, currently at $2.88. This leaves the broader bullish setup intact despite the bearish session.
50-Day Average Becomes Key
Since natural gas is consolidating at support near the 50-day moving average, if that average holds as support, the bias remains to the upside. A bullish reversal breakout from a bottom consolidation signaled a couple of weeks ago, resulting in an eventual reclaim of the 50-day moving average, which had represented dynamic resistance since price fell below it in early July. That transition from resistance to support is an important development for the emerging bullish trend.
The rising 20-day moving average has reached $2.83 and will shortly move above the recent higher swing low at $2.83, an important structural support level. This is a sign of improving underlying strength and provides additional confirmation for the recent bullish trend reversal signal. As a result, demand should remain firm if natural gas holds above the 20-day moving average, helping to maintain the bullish outlook.
Potential Upside Targets
During the recent decline in July there was a sharp drop that showed an imbalance of orders. Such periods can exhibit gap-like behavior and are often eventually filled. The top of the resulting range is near the 78.6% Fibonacci retracement of the prior decline at $3.20. That level could become an increasingly significant resistance zone as the 200-day moving average, currently near $3.28 and falling, moves closer to it. For now, however, the more immediate test is whether the 50-day moving average can continue to hold as support. If it does, the failed test near $3.03 may ultimately prove to be a pause within the broader bullish reversal rather than a change in trend.
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