Natural Gas Price Forecast: Outside Day Signals Reversal Risk

Volatility Expands with Outside Day Formation

Uncertainty grew in natural gas on Wednesday, with the day establishing an outside day that encompasses the range of the prior two sessions. Resistance near the 10-day moving average was tested with the day’s high of $3.25, while the 20-day moving average showed an area of dynamic support for the day’s low of $3.07. At the time of writing, buyers remain in charge, with trading occurring above both the 100-day and 20-day moving averages, which were each undercut earlier in the session.

Trendline Defense and Double Bottom Reaction

The day’s low found support right at the uptrend line. Subsequent bullish price action confirmed the uptrend structure and a failure of a bearish reversal signal that triggered earlier in the session. A double bottom pattern shows support at the higher swing low of $3.10. That level was briefly undercut earlier in the session, triggering a double bottom pattern. However, subsequent signs of strength show a failure of the bearish pattern, at least so far.

Failed Pattern Dynamics Raise Upside Volatility

Failed patterns can lead to sharp swings in the opposite direction. For natural gas that would be to the upside. The positive outside day near key support suggests the possibility of a bullish reversal from this support zone. Moreover, it strengthens the significance of the support zone and therefore a failure of support could see a sharp market reaction. The double bottom pattern remains a risk but only if triggered. Also, the pattern will start to lose its integrity with an advance above Wednesday’s high of $3.25.

Resistance Cluster Limits Upside Scope

Key upside resistance is near the recent trend high of $3.40, along with the 200-day moving average around $3.43. There is a higher target derived from a recent falling wedge pattern near $3.49. So, if the 200-day average is reclaimed, that level becomes a possibility of being tested as resistance.

Nevertheless, the current advance reached potential targets that could result in a completion of the rally. Even if there is further upside, it is probably limited, as things look now. The 200-day moving average presents long-term resistance and unless a sustained reclaim of that average occurs, the potential for downward pressure dominates.

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