Midweek Natural Gas Forecast – May 13, 2015

Many traders and analysts have been skeptical of natural gas’ recent price surge. However, technical analysis is good at telling us what the market thinks about itself, and it is hard to argue with the bullish technical factors that have formed over the past few weeks.

The June natural gas futures contract is testing a crucial decision point at $2.93. This is an important confluence point for many technical factors and is most importantly the 0.618 projection for the waves up from $2.481 and $2.711. The near-term fate of natural gas prices will be determined by a close above or below $2.93.

natural gas prices

A close over $2.93 would indicate market participants are expecting a bullish EIA report tomorrow and for prices to push for at least $3.05. There is a momentum divergence setup on the KasePO, which indicates the move up is becoming exhausted. However, based on many other positive technical factors, we expect to see a close over $2.93 and rise to at least $3.05, which is the next lynchpin for a bullish summer recovery.

A close below $2.93 would signal continued hesitance and doubt that this move up will be able to overcome $3.00. Look for support at $2.78 and $2.66. Even upon a significant correction we expect $2.66 to hold.

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It is hard to deny the strength of the natural gas price rally over the past two weeks. Last week’s bullish engulfing line, April’s bullish hammer and morning star setup, and bullish daily divergences on the KasePO, KaseCD, MACD, RSI, and Stochastic are all technical evidence that the move down may finally be complete. However, many traders are skeptical of the move up and are asking what fundamental factors would support a recovery over the course of the longer-term. It is a fair and accurate question. Tomorrow’s U.S. Energy Information Administration (EIA) Natural Gas Weekly Update should provide a strong clue regarding the potential strength of a continued natural gas price rise.

In addition to the aforementioned bullish technical factors on the monthly, weekly, and daily charts, the short term technical factors and wave formations show evidence for a move to at least $2.93. This is a decision point because it is the 2.764 (XC – shown in red) projection for the wave up from $2.481, the 1.00 (E – shown in pink) from $2.557, and the 1.618 (L – shown in purple) from $2.747. In addition, $2.93 is the last level protecting mid-March’s $2.982 swing high. A sustained close over this would open the way for an extended move to targets above $3.00. However, $2.93 will not likely be tested until after tomorrow’s EIA report, if at all, because most traders are waiting for confirmation from another lower than expected build.

natural gas prices

There is good reason to be suspicious of this move up, and a disappointing EIA report tomorrow could be the catalyst to turn prices lower again in very short order. Therefore, until there is a sustained close over $2.93 caution is warranted.

The daily chart has formed a hanging man and evening star setup as of this mid-day analysis, and a close below Monday’s $2.78 midpoint would complete the pattern. This would then open the way for $2.65, the 50 percent retracement of the move up and last week’s midpoint. A close below $2.65 would confirm the move up is over and most likely point toward the market settling into a trading range while it sorts itself out.

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For the second week in a row natural gas futures gapped lower on Monday. This might be an exhaustion gap, which in many cases signals the end of a long and drawn out trend. The top of the gap at $2.555 has been overcome as of Wednesday midday, and a close over this would call for an extended correction to at least $2.67, the top of last week’s gap and the 38 percent retracement from $2.982. These technical factors could be an early warning that a bottom has finally been made.

That said, we think it is premature to definitively state the bottom has been made. We will hold off on delving too deeply into that conversation until at least $2.67 is overcome. Most technical and fundamental factors are still negative, and while we do think the market is nearing a bottom, most evidence points to a target about 10-15 cents lower. The June contract met confluent support at $2.48, but the key objective that we have identified for weeks in our detailed natural gas forecast has not been met yet. A close back below $2.555 before the end of the week would signal that the upward correction has failed again.

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Natural Gas Prices

Natural gas futures nearly filled Monday’s gap down from $2.625. This is crucial resistance because it is near the 38 percent retracement from $2.949 and the confirmation point of April 15th’s morning star. A close over $2.625 would call for the upward correction to extend and challenge key resistance at $2.77. We still think resistance will hold, and a move below the $2.533 swing low will shift odds strongly back in favor of challenging the $2.475 low again.

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natural gas forecast

May natural gas futures stalled at $2.475 after meeting the 0.618 target for the wave $2.949 – 2.583 – 2.719. A close over $2.576 will complete the bullish morning star and a close over $2.624 would confirm it. In addition, the confirmed bullish KaseCD divergence and second class long KEES permissions indicate the upward correction should extend. A normal correction will hold the 38 percent retracement from $2.949 at $2.66. An extended correction is expected to hold $2.77, the 62 percent retracement.

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natural gas prices

From day-to-day natural gas prices are oscillating back and forth on short term speculation and headlines. At one moment we read that the weather forecast is cooler than normal for the next few weeks and then a headline says the forecast is normal. In addition, rig counts are down, but the rate at which they are declining is leveling off. Storage levels are high, and government data shows that production is on pace to increase by five percent this year. The point is that it is hard to get a handle on the fundamental factors right now, and that is fairly typical for this time of year in the shoulder months between the break of the winter heating season and summer cooling demand. However, during this time the technical analysis factors can tell us a lot about how events may unfold, especially for the near term.

The natural gas forecast looks weak ahead of tomorrow’s U.S. Energy Information Administration (EIA) Natural Gas Weekly Update. Prices are falling again after last Thursday’s four percent gain ahead of the long weekend. Thursday’s move formed a daily bullish and engulfing line, weekly bullish piercing pattern, and confirmed a daily divergence on the KasePO. However, the inability to follow through this week, and the potential for a close below Thursday’s $2.657 midpoint today, does not bode well for an extended upward correction before new contract lows are made.

As it stands, the wave formation down from $2.949 calls for $2.49 once natural gas prices close below the $2.56 target. A close below $2.56 and decline to $2.49 and lower is the most likely scenario that will unfold, unless there is another bullish shock from this week’s EIA report.

Natural Gas Prices

Overall, most factors for the short term are negative. Momentum on the KasePO is declining, and a new swing low below $2.583 would negate the bullish divergence. The KaseCD is also declining, but is setup for a mini-divergence between the $2.633 and $2.613 swing lows, so caution is warranted. The KEES indicator is showing strong first class short permissions (magenta dots) on the 240-minute Kase Bar chart, and a short trade was triggered this morning when the red S formed.

A close below last Thursday’s $2.657 midpoint would certainly increase the odds of a decline to $2.56 tomorrow. However, a move back above this at the end of the day today would increase the uncertainty of a continued decline and could open the way for $2.72 to be challenged again. This is the key resistance level for the near term, and a move above this would call for an extended correction. This is a less likely scenario, but is not unlikely.

To conclude, the market knows what its support and resistance levels are and the near term direction will be decided by a close beyond these levels. A close below $2.56 will call for at least $2.49. Conversely, a move back above $2.657 would call for another test of major resistance at $2.72.

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Natural gas had been supported by late winter weather in regions of the U.S. through late last week. However, as expected, natural gas prices finally broke lower out of the large scale corrective pattern that formed during the calendar month of March. The move down is poised to continue, but in the very short term, there may be a small pullback first.

The May futures contract broke out of another small bearish flag this morning on the 240-minute equivalent Kase Bar chart and fell to a new contract low of $2.583. This is an important area of support, and a potential short term stalling point because May’s $2.583 low is in line with the 1.00 target for the move down from $2.949 (as shown in the chart above), and is also near the continuation chart’s swing lows of $2.567 and $2.578. In addition, a bullish KasePO divergence (green trend line) was confirmed this morning.

Natural Gas Prices

All of these factors are positive for the very short term. They indicate that a pullback may take place ahead of tomorrow’s U.S. Energy Information Administration (EIA) Natural Gas Weekly Update. However, the longer-term technical and fundamental factors indicate resistance should hold and that the move down will extend. Once natural gas prices have definitively broken support between $2.57 and $2.60, look for $2.51 and $2.46, the latter of which is also the 0.618 projection of the compound wave $2.949 – 2.608 – 2.686.

Look for resistance at $2.65 to hold. This is the 21 percent retracement of the decline from $2.949 and is near the lower trend line of the small bearish flag that broke lower this morning. Even a pullback to $2.72, which is the 38 percent retracement, would be considered a normal correction. A close over $2.72 is doubtful without a bullish surprise from external factors.


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Natural gas prices are still oscillating in the upward sloping range that began March 3 when the $2.641 swing low was made. The lower trend line of the formation, which connects back to the $2.589 contract low, was tested, but held again on Monday. Most pundits indicate the long-term fundamentals are bearish, but this begs the questions, why hasn’t the market broken lower yet? This is one of many areas that technical analysis can help answer that question and give us a good idea of where the market will go once it breaks out of this range.

The chart below tells us everything we need to know about the outlook for natural gas in the near term, and can give us an idea about the longer-term outlook too. This is a very short-term analysis, so we will focus on those factors. Technical factors are showing that the market does agree with the bearish fundamentals, and that a break lower should take place soon, but that there are still enough positive factors like late winter weather in the Northeast to support prices for now.

Natural Gas Forecast

The range that has formed over the past few weeks is an expanding wedge (shown in green), and a break out of this pattern will solidify direction for natural gas prices. The break out points for the pattern at $2.69 and $2.94 are in line with the 0.618 projections for the wave up from $2.589 (show in in red) and down from $3.045 (shown in blue). The confluence of these points tells us that a close below $2.69 would open the way for the 1.00 projection of $2.53, and a close over $2.94 would call for an extended correction to $3.10.

The expanding wedge and the Fibonacci wave projections give us a solid forecast once the market breaks out of the wedge. The wedge is a corrective pattern, and because the market entered the pattern after declining from $3.045, a break lower out of the wedge is favored. The negative bias is also confirmed by the KaseX’s most recent yellow and pink down triangles.

In summary, the near-term outlook is negative and a bearish U.S. Energy Information Administration (EIA) Natural Gas Weekly Update tomorrow would likely be the catalyst to achieve the expected break lower out of the expanding wedge. A close below $2.69 will confirm the break lower and call for at least $2.53. Conversely, a close over $2.94 would call for an extended correction to $3.10.

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During the calendar month of March the April natural gas futures contract has traded in a range bound between $2.64 and $2.87. Most fundamental and technical factors are still negative for the long-term. The move up at this point is still corrective and will only delay the inevitable decline that is ultimately coming. However, late winter weather concerns continue to support the market and have rattled the nerves of traders enough over the past two days to push natural prices above $2.87 to challenge key resistance at $2.89 ahead of tomorrow’s U.S. Energy Information Administration (EIA) Natural Gas Weekly Update.

The market is hinting that a bullish EIA update may be expected, but if the number is disappointing, this natural gas price rise will collapse in upon itself and could be the catalyst the finally push prices lower to challenge key support targets.

The wave formations up from $2.589 (not shown), $2.641, $2.662, and $2.674 all show that $2.89 is a confluent wave projection. It is also the 62 percent retracement from $3.045 to $2.641. The confluence of wave projections and retracements at $2.89 make it the key decision point for an extended correction to at least $3.00 and possibly $3.07. At the time of this analysis, natural gas prices are trading right at $2.89, but they will need to settle above this to open the way for $3.00 in early trading tomorrow before the EIA update is released. Unless the EIA report is extremely bullish, it is doubtful that prices will settle above $3.07 in coming days.

natural gas forecast

Look for support at $2.78. This is in line with the $2.775 swing low, the midpoint of the recent range between $2.64 and $2.87, and the midpoint of the March 12 and 17 candlesticks. A close below $2.78 would indicate the move up has failed to extend once again.

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Natural gas prices are still oscillating in the corrective range between approximately $2.60 and $3.00. Early in the week it looked as though natural gas prices were ready to continue the decline. However, while there is little doubt that the long-term bias is negative, Wednesday’s price rise has called into questions how soon natural gas prices will fall to new contract lows.

Monday’s gap from $2.783 was filled early Wednesday and then April futures overcame the 0.618 projection at $2.80 for the wave up from $2.641. The $2.80 level was also near the 62 percent retracement of the decline from $2.87 to $2.662. The confluence of the wave projection and retracement at $2.80 makes it a crucial decision point for the near term outlook. Should natural gas prices close over $2.80, look for at least $2.89 because it is the 1.00 projection. This level is most important because it is also the 62 percent retracement from $3.045 to $2.641, the 0.618 projection for the wave up from $2.589 (not shown), and is in line with last weeks $2.87 swing high. A close over $2.89 would open the way for an extended correction and would further delay a decline to new contract lows.

natural gas prices

The first class long permissions (blue dots) for the Kase Easy Entry System (KEES) indicate the move up will likely continue, and that $2.89 should at least be tested tomorrow. However, the bearish KCDpeak (red K above 2.848) indicates the move up is already overbought on the 120-minute equivalent Kase Bar chart. A move above $2.848 would negate the KCDpeak, and as long as the KEES permissions remain long (blue dots) the near-term bias will remain positive.

Look for support at $2.73. A close below this over the next few days would shift the near-term bias back to negative and call for the $2.641 swing low to be challenged.

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