Natural Gas Price Forecast: Support Holds Amid Bearish Correction

Support Levels and Current Price Action

Despite another dip to a new corrective low of $2.92 on Wednesday, natural gas is set to close above the prior swing low at $3.01 from January for the second day. Although a long-term bearish signal triggered during the decline, natural gas is also in an area of potentially strong support. A long-term uptrend line and prior swing low show the potential support zone. However, clear signs of improving demand are needed before further downside risk has subsided.

Short-Term Pattern Signals

A small falling bull wedge pattern has formed in natural gas during February. The lower swing high at $3.32 provides a breakout level, while a recovery above the top boundary line of the pattern will provide an earlier breakout signal. Natural gas would then need to get above and stay above a lower swing high at $3.66. Note that the 200-day average is nearby at $3.59 and contributes to the resistance area.

Long-Term Pattern Perspective

Taking a step back to look at the larger pattern in natural gas reveals a large falling wedge that triggered to the upside in late-October. The first pullback after that breakout ended at the $3.01 swing low and a rally to a new trend high of $7.44 followed. That showed a successful test of support near the falling trendline at the top of the wedge. This current decline may also find support at or above that trendline, further showing it as support after it represented resistance while the wedge consolidation pattern formed. The relationship to the top of that channel suggests that the bearish correction may be close to a sustained support zone.

Risks and Trendline Considerations

On the other hand, a daily close below the lower uptrend line is bearish but that depends on what happens next. A relatively quick recovery above the trendline, followed by further signs of strength, would negate the trendline break. However, a decline below the $3.01 swing low is also bearish but it needs a daily close below there to confirm. That hasn’t happened yet.

Impact on Future Rally

The drop below the trendline also adds to the risk that the subsequent rally, may not be as sustainable as it would be, as the integrity of the channel is at risk. Certainly, a successful trendline break may just alter the angle of ascent slightly, while maintaining and upward bias. A similar trendline adjustment was made previously due to the bearish correction that ended at $2.62 in August.

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