Natural Gas Price Forecast: Holiday Hammer Confirms Highest Close of Rally

Thursday’s Holiday Session

Volatility in the price of natural gas on Thursday was muted given the impact of the Thanksgiving Holiday in the U.S. The shortened session nonetheless established a narrow-ranged bull hammer inside day. Thursday’s high of $4.65 found resistance in the same price zone as Wednesday’s high and the session ended in the green and near the high of the day. This shows buyers retaining control, especially since the daily closing price was the highest daily close for natural gas for the current uptrend, beginning from the August low. This is a sign of strength that could lead to an upside breakout from recent consolidation.

20-Day Average Confirmation

Although further confirmation of strength is needed, a new high daily closing price is a sign of strength of demand. Two days ago, natural gas weakened to a four-day low of $4.39 and bounced intraday. That was a clear confirmation of support at the 20-day average, now at $4.44 and rising. For the first time it has successfully been tested as support since it was reclaimed on October 20. This shows the short-term trend being intact and shows the significance of the 20-day average as dynamic support moving forward.

Downside Risk Levels

An initial sign of weakening in the trend is indicated on a drop below the 20-day line. A break to the downside shows bullish momentum slowing to the point where the start of a deeper correction begins. That could put at risk the higher swing low at $4.24. Further down are price areas that could see a reaction beginning with $4.15. However, given the break in trend structure and confirmation of a bull trend reversal, a retracement to the 38.2% Fibonacci level at $3.99 would not be surprising.

Outlook

Several weeks of consolidation have formed an ascending triangle type formation with an upward sloping bottom contrasting a relatively flat top. Resistance at the top of the pattern is at $4.69 and therefore the breakout level. If the breakout is going to have a chance at exceeding the long-term trend high at $4.90, signs of strong momentum should be seen on the breakout and follow-through. Nonetheless, the next upside target for natural gas is at $4.82, a 200% extension of the most recent pullback.

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