Natural Gas Forecast: September Rises to Key Resistance

Media sources indicate natural gas prices rose for the third straight session on Wednesday due to concerns that a storm could enter the Gulf of Mexico. However, hurricane threats to production are not as alarming as they had been in the past. The Gulf of Mexico accounts for less than five percent of domestic natural gas production. Most production has moved onshore due to the shale boom in recent years. In fact, many analysts, including ourselves, believe that a hurricane in the Gulf of Mexico would rather lead to decreased demand due to power outages and other disruptions.

Whatever the reasons (and there are likely many) for the increase in natural gas prices over the past few days, it is doubtful that a storm or hurricane entering the Gulf of Mexico will do much in the way of bolstering a price spike.

From a technical perspective, September natural gas rose to key resistance at $2.81 early Wednesday. This is the 62 percent retracement of the decline from $2.99 to $2.523 and the 1.382 projection of the wave $2.523 – 2.697 – 2.569. The 1.618 projection is $2.85, which is also near the trend line connecting $2.99 and $2.911. A close over $2.85 would call for $2.911 to be overcome and for prices to possibly challenge $2.99 and higher.

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That said, the range between $2.81 and $2.85 is a prime area for the move up to stall. Wednesday settled at $2.796 and prices have already started to pullback in late trading Wednesday afternoon. Look for initial support at $2.76 and $2.71. The latter should hold if the move up is going to continue because it is the 38 percent retracement from $2.523 to $2.819. The 62 percent retracement of this move defines key support for the near term at $2.64.

The most likely scenario right now is for prices to settle back into a trading range between nominally $2.64 and $2.85. This range dominated trading for most of July and could become dominant again in coming weeks as we move into the heart of shoulder month trading ahead of winter.

This is a brief natural gas forecast for the next day or so. Our weekly Natural Gas Commentary and intraweek updates provide a much more detailed and thorough analysis. If you are interested in learning more, please sign up for a complimentary four-week trial.

Technical analysis is technical. This means there are mathematics, charts, and statistics involved. Some interested in studying and using technical analysis are dismayed when they encounter numbers and charts. A math, engineering, science, or financial degree is not required to make use of technical analysis. However, an orientation towards structuring a view of reality mathematically is helpful.

Some people think technical analysis is a way to quickly make a lot of money, become a hotshot trader, or a means to finding the “Holy Grail” of trading systems. Technical analysis is certainly a means to success, but there is no way to get around the need for commitment and perseverance. Success in using technical analysis, like any endeavor, will take hard work, commitment, and perseverance.

The Four Aspects of Technical Analysis

When using technical analysis there are four basic applications: instrument selection, timing trade entries and exits, managing risk, and forecasting.

Technical analysis can be used to select instruments to trade. For instance, if a trader wanted to scan the 1,000 most active stocks and pick the instrument most likely to take a sharp turn, they could use technical momentum indicators such as the MACD or RSI to look for divergence. Divergence is a momentum signal that is triggered when a trend is exhausted. If a divergence occurs, it is likely that the instrument is getting ready to turn in a statistically significant manner. The trader can then decide to further analyze and possibly trade that instrument.

Once a trader has selected an instrument they can use technical analysis to determine the instrument’s direction, strength and extent of potential trends, support and resistance levels, potential turning points, and risk.

Technical analysis is, as the name implies, a study or examination of the market. The analogy commonly used in technical forecasting is that it is similar to cartography or map drawing. In other words, you are drawing a map of how to get from point A to point B.

Once the map has been drawn and the forecast is complete a trader can use technical indicators, geometric formations, and other methods of analysis to determine entry and exit point for the market. This is called market timing, and is one of the greatest strengths of technical analysis.

Example of Using Technical Analysis

In the daily chart below as natural gas prices fell to new price swing lows the RSI momentum indicator was making higher lows. This was a clue that the decline was exhausted and that a significant turn higher was about to take place. A trader with a short position would possibly cover the positon once the divergence was confirmed (green trend lines).

NG Daily RSI Divergence

After covering the short trade, the trader could then time a long entry when the 10-period moving average (red line) crossed above the 20-period moving average (blue line). This crossover is shown within the red circle. When the fast moving average (10-period) rises above the slow moving average (20-period) it suggests the move up should continue because there has been an upward shift in momentum.

Once the long trade has been taken, the trader can then begin to identify resistance levels using other methods of technical analysis. In the example above, a series of Fibonacci retracements from the $2.495 swing high to the $1.611 swing low are shown to the right of the chart. The 38.2, 50, and 61.8 percent retracement levels of this move were identified as resistance well ahead of being met. Note that at each of these levels a small turn lower or trading range took place. Ultimately, the move up held near the 61.8 percent retracement (pink ellipse) and turned lower again.

Conclusion

Technical analysis is a means of analyzing and interpreting what the market knows about itself. As discussed, the tools within the practice of technical analysis are useful for instrument selection, timing trade entries and exits, managing risk, and forecasting. By learning and using technical analysis, one can become a better trader by gaining a deeper level of insight into the markets they trade.

Declines in U.S. crude oil and gasoline inventories, a weaker U.S. dollar, and recent indications that OPEC and other major producers could take measures to stabilize prices are reportedly catalysts for last week’s near eight percent gain. However, some pundits believe the recent rally may keep the market oversupplied as higher prices could encourage more drilling. This point was emphasized by rig counts increasing by 10 last week to the highest level since February.

From a technical perspective, October WTI settled above key resistance levels at $48.0 and $48.7 late last week. The move up is poised to continue above $50.0, but is in desperate need of a correction. The Stochastic has been overbought, and on Friday, an evening star setup formed.

On Monday, the correction WTI has been waiting for began. Friday’s evening star was confirmed on Monday when October settled below $47.58. The Stochastic’s %K line is falling below the %D line, which is also negative. These factors indicate a deeper correction to at least $46.6 and possibly $45.8 should take place this week. The move down will likely be choppy and corrective, but should extend at least a bit more before the move up continues.

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The key support level is $45.8. This is because $45.8 is the 38 percent retracement of the move up from $39.96. A normal correction should hold $45.8. A close below this would call for an extended correction toward the 50 and 62 percent retracements.

Look for initial resistance at $48.3 and $49.0. These are near Monday’s midpoint and open. The $48.3 level will probably be tested in early trading, but should hold. A close over $49.0 would indicate the correction is complete. This would in turn open the way for $50.1 and higher.

This is a brief analysis and outlook for the next day or so. Our weekly Crude Oil Commentary and intraweek updates are a much more detailed and thorough energy price forecast. If you are interested in learning more, please sign up for a complimentary four-week trial.

Late last week, September natural gas fulfilled important support near $2.51 when prices fell to $2.523. This is the 1.00 projection of the wave down from $2.99, the 50 percent retracement of the move up from $2.009, and the 62 percent retracement from $2.195. The confluence of targets around $2.51 indicate it is a potential turning point for natural gas.

Prices have risen from $2.523 to $2.648 so far, but the move has been extremely choppy and shallow. As a result, the move is most likely corrective. This is accentuated by the formation of a bearish pennant on the intra-day charts. Pennants are continuation patterns that indicate the prior trend should continue. In this case, the pennant favors a break lower. A close below $2.57 would confirm the break lower out of the pennant and open the way for another test of key support at $2.51.

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September natural gas has worked its way to important resistance at $2.64, but has not been able to close over this level yet. $2.64 is the 0.618 projection of the primary wave up from $2.523. A close over $2.64 would call for key resistance at $2.68. The $2.68 level is near the 38 percent retracement of the move down from $2.911 and is the midpoint of last Tuesday’s candlestick. A close over $2.68 would be a strong indication that prices will settle back into a trading range.

It is a tight call right now, but until there is a close over $2.68, odds favor a continued decline.

This is a brief natural gas forecast for the next day or so. Our weekly Natural Gas Commentary and intraweek updates provide a much more detailed and thorough analysis. If you are interested in learning more, please sign up for a complimentary four-week trial.

September WTI crude oil’s settle above $44.4 Friday and $45.7 Monday has opened the way for the move up to continue. The Stochastic has risen into overbought territory, but there is no technical evidence the move will stall.

The next targets are $46.3, $47.0, and $47.9. The $47.9 level is a crucial confluence point split between the 62 percent retracement of the decline from $52.73 and the 1.618 projection of the wave up from $39.19. A sustained close over $47.9 would confirm the market is moving toward bullish territory again.

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A pullback may take place soon. However, support at $45.3 should hold. This is near Monday’s midpoint. Key support for the near-term is $44.7. A close below this would call for an extended downward correction to at least $44.1 and possibly $43.5.

This is a brief analysis and outlook for the next day or so. Our weekly Crude Oil Commentary and intraweek updates are a much more detailed and thorough energy price forecast. If you are interested in learning more, please sign up for a complimentary four-week trial.

September natural gas’s correction down from $2.99 is extending after breaking lower out of a coil formation. Tuesday’s close below $2.66, the 0.618 projection of the wave $2.99 – 2.591 – 2.911, opened the way for the 1.00 projection at $2.51. The $2.51 target is also the 50 percent retracement of the move up from $2.009 to $2.99 and the 62 percent retracement from $2.195. Unless there is a bearish shift in underlying fundamentals, $2.51 should hold.

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The KaseCD, a second derivative momentum indicator, is setup for bullish divergence on the daily chart. First resistance is $2.63. The key level for the near-term is $2.68. This is Tuesday’s midpoint and the 38 percent retracement of the decline from $2.911. A close over $2.68 would indicate September natural gas will most likely settle back into the recent trading range.

This is a brief natural gas forecast for the next day or so. Our weekly Natural Gas Commentary and intraweek updates provide a much more detailed and thorough analysis. If you are interested in learning more, please sign up for a complimentary four-week trial.

September WTI crude oil’s correction up from $39.19 gained ground on Monday when it settled above $42.8. Media outlets indicate the rise was due renewed hopes that OPEC members might consider freezing production levels. OPEC announced on Monday that they would hold informal talks at an energy conference in September.

That said, from a technical perspective, the move down was due for a correction. September WTI briefly moved into bearish territory last week when it settled below $40.4. However, a highly confluent and important $39.2 target held when the $39.19 swing low was made. The Stochastic has since risen out of oversold territory, and several intraday charts confirmed bullish momentum divergences.

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Friday’s hanging man candlestick pattern was negative by Monday’s close over $42.8. This opens the way for $44.4. This is the 38 percent retracement of the decline from $52.73 to $39.19 and an important decision point for the near-term. If the move down is going to continue within the next few weeks, $44.4 should hold. However, a close over $44.4 would call for an extended correction and could be an early indication that another long-term bottom has been made.

As the move up extends over the next few days, look for near-term support at $42.5, $41.8, and $40.8. The $42.5 level will probably be tested early Tuesday, but should hold. This is near Monday’s midpoint. Key support is $40.8 because it is the 62 percent retracement of the move up from $39.19. A close below this would shift odds in favor of testing $39.19 again.

This is a brief analysis and outlook for the next day or so. Our weekly Crude Oil Commentary and intraweek updates are a much more detailed and thorough energy price forecast. If you are interested in learning more, please sign up for a complimentary four-week trial.

September natural gas is trying to break higher out of the month long trading range. Two important boundaries have been established within the range. First between $2.71 and $2.84. Second between $2.66 and $2.96. Prices rose above $2.84 in early trading Wednesday, but closed just below at $2.839. Nonetheless, prices will likely push for at least $2.91 and possibly $2.96 tomorrow. A close over $2.96 would call for the bullish trend to extend to targets above $3.00. Given the strength of the moves up today and last Thursday, it looks as though prices will rise to new recovery highs soon.

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That said, a break higher out of the range in the near-term will likely hinge on tomorrow’s EIA Natural Gas Storage Report. A larger than expected build (some are looking for a draw in tomorrow’s report) could open the way for another test of $2.71. A close below this would then call for key support at $2.66.

With all technical factors considered, odds favor the move up tomorrow. September will need to close over $2.91 to keep the momentum it gained today and then close over $2.96 soon to open the way for targets above $3.00.

This is a brief natural gas forecast for the next day or so. Our weekly Natural Gas Commentary and intraweek updates provide a much more detailed and thorough analysis. If you are interested in learning more, please sign up for a complimentary four-week trial.

August natural gas stalled at $2.998 late last week. So far, August has pulled back to $2.697. The $2.998 swing high was in line with the 1.618 projection of the wave $1.99 – 2.494 – 2.157. From a technical standpoint, the move up was due for a correction. Momentum was exhausted and the bearish KasePO divergence indicates the correction that began Tuesday should now challenge major support levels.

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Longer-term, the outlook for natural gas is positive. The move up looks to be forming five-waves. Wave III of the five-wave pattern was completed at $2.998. The corrective Wave IV is now underway. A normal correction should hold $2.61, the 38 percent retracement from $1.99 to $2.998. The $2.61 level was also strong support between June 10 and 17.

A close below $2.61 would open the way for a more significant correction. However, the longer-term bullish outlook would not be called into question unless there is a sustained close below $2.38. This is the 62 percent retracement of the move up from $1.99. Such a move is highly doubtful without a significant bearish shift in underlying fundamentals.

Wednesday’s hammer formation indicates the move down may halt to a grind lower. A test of Tuesday’s $2.84 midpoint will likely take place on Thursday. Key resistance is $2.88. This is the 62 percent retracement from $2.998 to $2.697. While $2.88 holds, odds will continue to favor a deeper correction.

This is a brief natural gas forecast for the next day or so. Our weekly Natural Gas Commentary and intraweek updates provide a much more detailed and thorough analysis. If you are interested in learning more, please sign up for a complimentary four-week trial.

August natural gas pushed to new highs Tuesday and early Wednesday before stalling at $2.974. Cooler than previously expected near-term temperature forecasts are reportedly the culprit for Wednesday’s pullback and settle at $2.863.

Longer-term, the outlook for natural gas is positive and is most likely forming a five-wave trend. The move up is due for a significant correction to form a potential Wave IV. Momentum is setup for bearish divergence. The Stochastic has also crept its way below the overbought threshold.

Charts show that August natural gas met a cluster of important wave projections at $2.974 Wednesday morning. The most significant was the 1.618 projection of the primary wave $1.99 – 2.494 – 2.157. It is rare for a primary wave such as this to extend beyond the 1.618 projection without a significant correction first.

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The pullback from $2.974 forms a daily shooting star. This reversal pattern would be completed upon a close below Tuesday’s $2.82 midpoint and confirmed upon a close below the $2.751 open. This would then open the way for $2.66, the 38 percent retracement from $2.157 to $2.974.

This is a brief natural gas forecast for the next day or so. Our weekly Natural Gas Commentary is a much more detailed and thorough analysis. If you are interested in learning more, please sign up for a complimentary four-week trial.