Natural Gas Price Forecast: Bullish Wedge Signal or Breakdown Risk?

Natural Gas Attempts to Stabilize After Failed Breakout

Natural gas continues to provide a degree of uncertainty as it attempts to confirm a bullish breakout of a small falling wedge pattern. A false breakout triggered on Tuesday and showed signs of failure as Wednesday’s close was below Tuesday’s low and the top boundary line of the wedge. Resistance during the initial breakout was seen at $3.19. That provided a successful test of resistance at both the 20-day moving average and the long-term uptrend line

On Thursday, natural gas recovered some of Wednesday’s decline, establishing an inside day at support near the top boundary line of the wedge. Signs of strength would next be seen on a rally above Wednesday’s high of $3.08, which would represent a second reclaim attempt of the 20-day average. However, a bullish reversal signal above the lower swing high of $3.19 would be needed to signal a bullish reversal and confirm the wedge breakout. At that point the uptrend line will have also been recovered. If an upside breakout is to occur, it should happen in the near future; otherwise, the wedge pattern may expand into a larger consolidation or evolve into a different pattern.

Bullish Confirmation Requires Break Above Key Swing Highs

If this week’s high is exceeded, then another bullish reversal above the $3.25 lower swing high will be needed to confirm the strength of the reversal. A first upside target zone would then be $3.56-$3.66, consisting of the 200-day moving average and the lower swing high at the top of the wedge, respectively.

Bearish Pressure Persists Below Trendline and Moving Average

Downside pressure remains if natural gas stays below the 20-day average and the long-term uptrend line. The drop below the long-term trendline is bearish, and even more so since the January swing low at $3.01 was broken recently. That low was part of the prior structure of higher swing lows and higher highs. It suggests either a deeper correction or a realignment of the long-term bull trend to a lower slope. Short-term support is at $2.89, which would put the price back into the wedge formation, i.e., downward sloping consolidation.

Breakdown Risk If Price Returns Inside the Wedge

A daily close back inside the wedge would increase the chance for a drop to the current trend low of $2.78. If that level is broken, then a higher swing low and monthly low at $2.62 marks the next downside target. However, given bearish momentum at that point, a drop below it looks very possible.