Natural Gas Price Forecast: Bulls Eye Wedge Breakout

Falling Wedge Formation and Price Structure

Natural gas further confirmed the formation of a potentially bullish falling wedge on Monday, reaching a five-day high of $3.07 and touching the top boundary line of the pattern. The pattern has formed with a low of $2.78, as it tested support at the higher monthly low for September. Also, that was near the top of a downtrend that marked the top boundary of a large falling bull wedge, which triggered to the upside in late October.

Breakout Conditions and Trend Reversal Signals

Despite the potential for an upside breakout from the wedge formation, it needs to trigger to be valid. Until then, the pattern is showing a declining consolidation that could also trigger a bearish continuation with a drop below $2.78. An early sign of strength would be seen on a rise above the top boundary line of the pattern, followed by a reclaim of the 20-day moving average, now at $3.13 and falling. However, a rise above the small lower swing high at $3.25 suggests a more reliable signal. An advance above that high provides a trend reversal signal, as well as further confirming the wedge breakout.

Key Resistance Zones and Trend Channel

A recovery of the $3.25 high would put natural gas back into the range of a large rising trend channel. If it can remain the uptrend line at the bottom of the formation, it will continue to have a chance of strengthening further. There is a key potential barrier of resistance to overcome from around $3.57-$3.66, consisting of the 200-day moving average and lower swing high, respectively. Although the 200-day average is not in a trending environment, it does provide a reference point, especially when also identified by price structure.

Downside Exhaustion and Recovery Potential

Certainly, there is an argument to be made that natural gas is overextended to the downside and overdue for a recovery of some degree. Simply relating the current bearish correction to the two earlier corrections since the 2024 bottom, suggests a relief rally may be close at hand. At the recent bottom, the price of natural gas was down by 62.7% from the multi-year high of $7.44 that was reached in January.

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