Indications of a tightening supply/demand balance chased away some of the weaker shorts, leading to the formation of a potentially bullish closing price reversal bottom chart pattern.
Natural gas futures touched a multi-year low on Friday before ending higher for the session. Indications of a tightening supply/demand balance chased away some of the weaker shorts, leading to the formation of a potentially bullish closing price reversal bottom chart pattern.
The tightening supply/demand balance may be enough to slow down or even stop the selling pressure, but it’s going to take a dramatic shift in the weather pattern to trigger the start of a strong short-covering rally. Given the massive amount of shorts in the market, this may be the spark needed to start meaningful short-squeeze.
On Friday, March natural gas futures settled at $1.841, up $0.012 or +0.66%.
The main trend is down according to the daily swing chart. The downtrend was reaffirmed on Friday when sellers took out the previous session low at $1.815.
A move through $1.812 on Monday will signal a resumption of the downtrend. The main trend will change to up on a trade through the January 14 main top at $2.204.
A change in trend to up is highly unlikely on Monday, but Friday’s closing price reversal bottom could be signaling an imminent shift in momentum.
A trade through $1.856 will confirm the closing price reversal bottom. This could trigger the start of a 2 to 3 day counter-trend rally.
The minor range is $1.963 to $1.812. Its 50% level at $1.888 is the first upside target.
The main range is $2.204 to $1.812. Its retracement zone at $2.008 to $2.054 is the second upside target.
Based on Friday’s price action and the close at $1.841, the direction of the March natural gas futures contract on Monday is likely to be determined by trader reaction to $1.856.
Taking out $1.856 will confirm the closing price reversal bottom. This could trigger a quick rally into the pivot at $1.888. Overtaking this level will indicate the buying is getting stronger with the next target a gap at $1.963 to $1.977.
Overtaking $1.977 could trigger an acceleration into the short-term retracement zone at $2.008 to $2.054.
Taking out $1.812 will negate the closing price reversal bottom. This will signal the absence of buyers or increased selling pressure. There is no downside objective at this time, but $1.65 is a long-term target.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.