Natural Gas Price Forecast: Undercut-and-Run Tests Bearish Structure

Undercut-and-Run Pattern Emerges Near Fibonacci Support

Natural gas fell on Monday to further test recent lows as support nears a 61.8% Fibonacci retracement zone. A slightly new retracement low of $3.79 was reached, below the prior trend low of $3.80 from December 22. The day’s decline failed to find support at either the 50-day or 10-day moving averages, which had held as support for several days prior. An intraday recovery to the top half of the day’s price range indicates a likely closing above the prior trend low. This would suggest a possible undercut and run pattern setting up.

That is where a new trend low fails to follow through to the downside in one session and closes back above prior support by the end of the session. In other words, the sellers were clearly in control before the buyers took back control and kept it into the close of the session. Therefore, buyers may remain in control heading into Tuesday’s session.

50-Day Breakdown Maintains Downside Pressure

The possibility of the undercut and run short-term bullish scenario is possible due to support previously indicated near the 61.8% Fibonacci retracement at $3.89 along with a top rising trend channel line. It was marked as an area of strong support recently, as natural gas could not fall through it over five days of sitting below the 50-day average. Nonetheless, the break below the 50-day line after a first pullback after a key breakdown shows remaining downward pressure in the price of natural gas. Until there is a sustained recovery of the 50-day line that will continue to threaten any advance.

Second Bearish Leg Signals Trend Continuation Risk

There had previously been only one leg down in the current bearish correction until today. Two legs down in a correction is common. A lower swing high was generated today along with a bearish trend continuation signal below the prior trend low. Although in the short-term natural gas could see more of a bounce, the overall pattern is suggesting further downside following that advance into resistance. That scenario will not change until there is a decisive advance above the lower swing high at $4.59.

Lower Swing High Points to Deeper Support Test

The fact that a lower swing high has been established near the 20-day average is bearish for the near-term trend as it was clearly support previously during the advance. If today’s low is busted to the downside the next lower key support zone is near the 200-day average at $3.57 and prior structure at $3.64 to around $3.59.

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