Natural Gas Price Forecast: Hammer Forms After Fresh Retracement Low

Intraday Bounce Raises Hammer Reversal Possibility

Natural gas extended its bearish correction Monday, reaching a new retracement low of $3.36 before demand improved and led to an intraday bounce. At the time of writing trading continues in the upper quarter of day’s range and near the opening. A daily closing in a similar position will complete a potential one-day hammer candle pattern. The pattern shows sellers in charge earlier in the trading session before buyers began to dominate. That intraday bullish momentum may continue if a daily reversal is triggered in subsequent sessions.

78.6% Retracement Recovery Adds Short-Term Significance

There are two indicators to note when looking to see if there is some significance to Monday’s new retracement low. An internal uptrend line was close to Monday’s low and marked potential dynamic support. More significant is the relationship to the 78.6% Fibonacci retracement at $3.45. It was broken to the downside earlier in Monday’s session but has since been recovered. Natural gas is on track to end the day with a bull hammer candle and a recovery of the 78.6% retracement, which will confirm with a daily close above the level. So, the daily close is set to show support near the Fibonacci level.

First Close Below 200-Day Average Since October

Despite the minor short-term signs of strength, today’s decline put natural gas below the 200-day moving average for the first time since late October, and it is set to close in a similar, relatively bearish position. Signs of strong support was possible near the 200-day line since it had not been tested as support after it was reclaimed at the end of October. The bearish failure confirmed by a daily close below the 200-day average today will suggest that downside pressure may yet remain.

Reclaim Levels Needed to Confirm Improving Demand

The 200-day line is now at $3.57, and Friday’s lower daily high is at $3.70. Although a reclaim of the 200-day average will show improving demand, a sustained breakout above a lower daily high will provide greater assurance that demand is continuing to improve and that the reclaim of the 200-day line may be sustainable.

Lower ABCD Projection Defines Deeper Downside Risk

If sellers remain in charge before a bounce, there is another potential target a little lower than what has been seen so far, at $3.26. That target is the 78.6% projection for a falling ABCD pattern that defines the measured moves of the bearish correction that followed the $5.50 peak in early-December.

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