Natural Gas Price Forecast: Breakdown Risk Builds at Support

Support Zone Emerges at $2.72

Natural gas fell to a retracement low of $2.72 last Tuesday before early signs of support emerged, leading to a bounce. That low was testing a key price zone highlighted by the higher swing low of $2.74 from August and an 88.6% Fibonacci retracement of the recent upswing at $2.75. In addition, an interim trendline, beginning from the August 2024 swing low also shows potential support near this recent low.

Converging Structure Creates Decision Zone

Three indicators are pointing to the support zone, highlighting its potential significance as a decision zone. With recent price action, that trendline has been confirmed with a third point, or is close to confirming, depending on the degree of confirmation needed since it may not have been fully tested. That uptrend line and the downtrend line will cross around May 13. Therefore, a move through one of those trendlines will occur before then, helping to define that next likely direction.

Broader Downtrend Remains Intact

The most likely direction remains lower given recent price action. Natural gas is in a downtrend that includes a breakdown of the long-term uptrend line in early January, which has since been reaffirmed, as the 100-day has crossed below the trendline and the 200-day moving average is beginning to cross below it. This means that countertrend rallies to test resistance near the long-term trend indicators, are likely to find it, at least on the first approach.

Resistance Layers and Potential Reversal Signals

Note that the 200-day average was successfully tested as resistance during the upswing to a lower swing high of $3.49 in early March. Since the 100-day average is now lower at $3.31, it presents the next longer-term dynamic resistance zone, and therefore a potential upside target in the event of a bullish reversal from recent lows. However, it is only on a recovery of the 50-day average that there is a sign that a short-term reversal may be starting.

The lower daily high at $3.19 is a key part of structure and it provides an initial upside target along with the 100-day average. Last week’s high of $2.88 can be used for the next sign of strength as a rally above it will trigger a one-week bullish reversal.

Breakdown Risk and Lower Targets

On the downside, a bearish continuation of the trend is indicated on a decisive decline below $2.72. That would indicate a failure of current support and likely lead to a quick decline below the January swing low of $2.58. A lower target zone is marked from around $2.15 to $1.99, which would extend the broader bearish structure if downside momentum continues.

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