Natural Gas Price Forecast: Breakout or Breakdown Ahead?

Trendline Defense Sparks Short-Term Strength

Natural gas continued to flirt with a dynamic trend support zone marked by an uptrend line and the 20-day moving average. On Friday, a shortened trading day due to a U.S. holiday, a one-day bullish reversal triggered above Thursday’s high, along with a recovery of both the trendline and the 20-day average. This behavior showed persistent support near the two trend indicators and the potential for a continuation of strength in the near-term.

Volatility Compression Near Key Resistance

Also, volatility has been falling over the past couple of weeks as the trading range continues to compress. The one-day reversal and recovery of trend indicators suggest a potential near-term retest of the recent resistance zone. Although the current high of the zone is at $3.40, an extension to the 200-day moving average, given its long-term significance and alignment with prior resistance near the $3.40 area, also looks possible.

Short-Term Levels Define the Next Test

The interim swing high of $3.33 from Tuesday is the next short-term upside target. It would need to be exceeded before the recent lower swing high of $3.38 could be challenged. Since the top resistance zone has been identified by a series of lower swing highs, a change to that pattern would occur with a rally above the $3.38 high. That could then be the beginning of further upside pressure.

Weekly Compression Signals Expansion Risk

Range compression is also evident in the weekly chart, as this week completed a double inside week pattern. Price compression leads to price expansion and the tighter or longer the compression develops, the greater the potential response once a breakout occurs, either up or down. The larger developing bearish pattern, along with persistent resistance near recent highs, supports the potential for a broader reversal of the current advance. That advance would then have completed the first pullback after a significant break below a long-term rising trendline in February.

Trendline Break vs Recovery Scenario

Once prior support of the trendline switches to resistance, the bearish trend is positioned to continue. That is, unless there is a decisive bullish continuation signal generated. That would begin with a sustained reclaim of the 200-day moving average, now at $3.44.

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