Natural Gas Price Forecast: Breakdown Signals Further Downside Risk

Breakdown Confirms Bearish Continuation

It looks like a decision has been made in natural gas, as price triggered a new trend low on a drop below $2.78 on Wednesday, falling to $2.71 at the time of writing. It looks likely to end the session below that level and will therefore confirm the bearish trend continuation signal. Short-term trend resistance is near the 10-day moving average, now at $2.87, as it has been confirmed as resistance for the past 11 days.

Support Zone and Structural Risk

The bearish continuation signal puts natural gas on track to test support near the higher swing low, and a monthly low, at $2.62 from August. That level may be joined by a prior falling trendline that was successfully tested as support during the two prior downswings, at $2.78 and $3.01, respectively. Therefore, it may represent a support zone again, especially since it is joined by a key higher swing low for the long-term bull trend structure.

The trendline was the top boundary for a large falling bullish wedge that triggered to the upside in late October. Consequently, a sustained drop below $2.62 would provide a new bearish reversal signal as a higher swing low would be violated. That would follow an earlier trend reversal signal on a drop below the $3.01 swing low from January.

Long-Term Breakdown Signals Reinforced

Bearish price action on Wednesday further confirms recent long-term bearish signals. In addition to the swing lows noted above, a breakdown from a long-term rising trendline, and channel bottom, triggered on February 17, leading to a low at $2.78. That low was violated today, but not before an upswing generated a lower swing high at $3.49 and a successful test of resistance near the 50-day and 200-day moving averages.

Sellers Regain Control

Nonetheless, the sharp intraday bearish reversal following the $3.49 high reinforces the broader shift in trend. Sellers quickly took back control and drove price down for the remainder of the session, with the session closing near the low for the day.

Reversal Conditions to Watch

As a result, the bearish outlook remains intact unless conditions begin to shift. The decisive rally above the interim swing low at $3.06, followed by an advance above the lower swing highs in a range from $3.27 to $3.32, would begin to challenge the current bearish structure and reconnect price action with prior support levels that have now turned into resistance.

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