Natural Gas Short-Term Forecast – October 4, 2017

November natural gas’ initial rise to $2.977 overcame Monday’s $2.967 midpoint. However, prices could not close above that level and the subsequent decline has already retraced 50 percent of the move up from $2.88. The candlestick’s long upper shadow indicates today’s move up was most likely a failed attempt to overcome resistance. Therefore, odds still favor a decline. A move below $2.90 early tomorrow would open the way for $2.85.

Natural Gas Daily Candlesticks
Natural Gas Daily Candlesticks

That said, a bullish daily KaseCD divergence and rising Stochastic %K-line indicate consolidation and possibly another attempt at $2.98 and higher might take place. $3.02 is most important for the near-term because it is split around the 38 percent retracement of the decline from $3.214, the 62 percent retracement from $3.089 and the 50-day moving average.

To confirm the move down is over (for now), prices must overcome the $3.089 swing high, which is also the 62 percent retracement of the decline from $3.214. This would, in turn, take out the wave $3.214 – 2.974 – 3.089 that projects to $2.85 and lower.

With all factors considered, the market still has a neutral-to-negative near-term outlook. Until external factors can support a sustained recovery, the decline will most likely continue to grind its way lower.

This is a brief analysis for the next day or so. Our weekly Natural Gas Commentary and daily updates are much more detailed and thorough energy price forecasts that cover key natural gas futures contracts, calendar spreads, the UNG ETF, and several electricity contracts. If you are interested in learning more, please sign up for a complimentary four-week trial.

November WTI crude oil met the 62 percent retracement of November’s decline from the 2017 $58.37 swing high to $42.8 at $52.42 when it rose to $52.43 early this morning. This is major resistance because it is also a confluent wave projection. Settling above $52.6, the upper end of the confluence range around $52.42, would be bullish for the long-term.

Crude Oil Daily Candlesticks
Crude Oil Daily Candlesticks

For now, the long-term outlook remains positive. However, normally, when such an important target is met a significant correction will take place before that objective is overcome on a sustained closing basis. Today’s pullback from $52.42 formed a bearish Harami line and star, which is a reversal pattern. These patterns are not highly reliable, but the overbought daily Stochastic, RSI and nearly overbought KasePO indicate a pullback should take place soon.

This afternoon’s move up after the API Petroleum Inventories report was released indicates $52.6 might be tested early tomorrow. However, we expect this level to hold and for the downward correction to extend to at least $51.4 tomorrow, which is in line with Monday’s $51.45 midpoint. A close below this would open the way for $51.0 and possibly lower.

At this point, even a normal correction of the move up from the $46.14 swing low could drop prices to $50.0 should the corrective pullback extend as expected.

This is a brief analysis for the next day or so. Our weekly Crude Oil Commentary and daily updates are much more detailed and thorough energy price forecasts that cover WTI, Brent, RBOB Gasoline, Diesel, and spreads. If you are interested in learning more, please sign up for a complimentary four-week trial.

Yesterday’s decline was a dose of reality that has set natural gas back into a state of uncertainty. With all factors considered, October natural gas will most likely settle back into a neutral trading range between nominally $2.91 and $3.04. This is about the same range prices oscillated within before last Thursday’s break high out of the bullish flag.

Natural Gas Kase Bar Chart
Natural Gas Kase Bar Chart

The wave formation down from $3.088 and a bearish daily KaseCD divergence call for $2.95, which then connects to $2.91. A close below $2.91 would call for $2.85, which in turn, would take out the crucial $2.88 swing low. A move below $2.88 would wipe out the wave up from $2.799 that projects to key upper resistance at $3.12.

That said, the 50-day moving average has held, so there is a modest chance the wave up from today’s $2.96 low could extend to $3.04 first. At this point we expect $3.04 to hold. However, a close above this would call for another attempt at $3.09 and possibly $3.12.

This is a brief analysis for the next day or so. Our weekly Natural Gas Commentary and daily updates are much more detailed and thorough energy price forecasts that cover key natural gas futures contracts, calendar spreads, the UNG ETF, and several electricity contracts. If you are interested in learning more, please sign up for a complimentary four-week trial.

October WTI crude oil continues to work its way toward crucial support at $45.6. Most importantly, this is the 62 percent retracement of the move up from $42.52 to $50.51. It is also a confluent projection for the waves down from $48.91, $48.5, and $48.2. A move below initial support at $46.1 will clear the way for $45.6.

CLV17 Daily Chart
CLV17 Daily Chart

The confluence of projections at $45.6 makes it a potential stalling point. However, today’s $46.44 settle was below the $46.5 smaller than (0.618) target of the larger scale wave $50.51 – 46.62 – 48.91. Therefore, this wave should ultimately extend to its $45.0 equal to (1.00) target. An upward correction will likely take place once $45.6 is met, but while the $48.91 swing low holds, odds will favor an eventual decline to $45.0.

That said, unstable external factors have crude and products on edge. Therefore, the move up from $45.76 this afternoon was likely short covering. Resistance at $46.9 should hold tomorrow. A move above this would call for a test of Monday’s $47.2 midpoint. Even so, unless WTI settles above $47.8, which splits the difference between Monday’s open and the 62 percent retracement of the decline from $48.91, the near-term outlook will remain negative.

This is a brief analysis for the next day or so. Our weekly Crude Oil Commentary and daily updates are much more detailed and thorough energy price forecasts that cover WTI, Brent, RBOB Gasoline, Diesel, and spreads. If you are interested in learning more, please sign up for a complimentary four-week trial.

WTI crude oil continues to rise ahead of May 25’s OPEC meeting. Market participants are optimistic that OPEC will extend production cuts through the end of 2017. Many hope this will help to ease the global supply glut. U.S. production remains a concern, but for now, oil prices are poised to rise.

Most technical factors are positive. In recent days, July WTI sustained settles above the 62 percent retracement of the decline from $54.45 to $44.13. This is a strong indication that the recovery from $44.13 will continue.

July 2017 WTI Crude Oil - 35-Cent Kase Bar Chart
July 2017 WTI – 35-Cent Kase Bar Chart

Today’s break higher out of another intraday bullish flag and settle above Monday’s $51.43 high opens the way for $52.5. As shown in the chart above, this is a highly confluent wave projection that sits just above the 78 percent retracement of the decline from $54.45 to $44.13. The confluence of wave projections at $52.5 make it a potential stalling point.

Momentum on the KaseCD and KasePO is rising. The KasePO is setup for bearish momentum divergence, a reversal signal that forms when higher swing highs in price and lower swing highs in momentum are made. To confirm the divergence signal, a swing high in price and momentum must form before momentum rises to a new high.

The Kase Easy Entry System (KEES) also triggered a second class buy signal (light blue L) on the 35-cent Kase Bar chart today. A second-class buy signal indicates the majority of momentum indicators KEES examines are positive but that momentum on the synthetic longer bar length is negative. Traders using Kase StatWare may have taken a smaller position and placed a tighter trailing stop. Stops may be widened once the KEES permissions shift to first class (dark blue dots).

For the near-term, the $50.57 swing low is important support. A move below this would likely trigger the bearish KasePO divergence and open the way for a correction to $50.0 and possibly $49.6.

This is a brief analysis and outlook for the next day or so. Our weekly Crude Oil Commentary and daily updates are much more detailed and thorough energy price forecasts that cover WTI, Brent, RBOB Gasoline, Diesel, and spreads. If you are interested in learning more, please sign up for a complimentary four-week trial.

Last Wednesday, June WTI broke higher out of the intraday bullish flag discussed in the crude oil forecast. The subsequent move up overcame the 0.618 and 1.00 projections of the wave $43.76 – 46.98 – 45.53. However, June stalled at $49.66 before meeting key resistance at $50.1. This is the confluence point between the 1.382 projection and the 62 percent retracement of the decline from $54.14 to $43.76.

Ultimately, June WTI should challenge $50.1. A sustained close over this would be a strong indication the larger scale move down is over, for now. However, bearish KaseCD and MACD divergences on the $0.50 Kase Bar chart call for a test of support first.

June WTI Crude Oil - $0.50 Kase Bar Chart
June WTI Crude Oil – $0.50 Kase Bar Chart

So far, the decline from $49.66 has been reasonably shallow and choppy, indicating it is most likely corrective of the move up. Today, June settled below the 0.618 projection of the wave $49.66 – 48.73 – 49.38 and met the 1.00 projection at $48.5. Meeting the 1.00 projection means the correction may already be complete. However, until prices rise above the $49.38 swing high, odds favor a deeper correction to $48.1 and possibly $47.1.

If the move up is going to continue to $50.1 this week, $47.1 must hold. This is the 62 percent retracement of the move up from $45.53 to $49.66. A close below $47.1 would call for a deeper test of support and possibly for June to challenge the crucial $45.53 swing low.

This is a brief analysis and outlook for the next day or so. Our weekly Crude Oil Commentary and daily updates are much more detailed and thorough energy price forecasts that cover WTI, Brent, RBOB Gasoline, Diesel, and spreads. If you are interested in learning more, please sign up for a complimentary four-week trial.

The long-term outlook for WTI crude oil remains negative and it is too soon to state that a bottom has been made. However, last Friday, June WTI met major support at $43.76, the 1.00 projection of the wave $57.95 – 47.58 – 54.14 (exact projection was $43.77). This was also in the realm of the August 2016 swing low of $44.56 and the 62 percent retracement of the move up from $36.18 to $57.95 ($44.5). The confluence of support between $43.77 and $44.56 and the fact that this range has held on a closing basis favors a larger upward correction before the decline continues.

In addition to meeting support at $43.76, June WTI confirmed daily bullish divergences on the KaseCD and Stochastic and a bullish KasePO PeakOut (oversold signal). These signals call for the upward correction to extend. Most importantly, over the past two days, the pullback from $46.98 formed a bullish intraday flag, shown below on the $0.35 Kase Bar chart.

June 2017 WTI Crude Oil - $0.35 Kase Bar Chart
June 2017 WTI Crude Oil – $0.35 Kase Bar Chart

For now, according to Kase’s price forecasting model, odds are 65 percent for a break higher out of the flag. These odds will increase as prices rise toward the upper trendline of the flag at $46.6.

Important resistance at $47.6 should be challenged upon a break higher out of the flag. This is the confluence point between the 38 percent retracement of the decline from $54.14 to $43.76 and the 0.618 projection of the wave $43.76 – 46.98 – 45.53.

That said, there are some danger signs that indicate the flag, and other bullish technical factors, are on the teetering edge of failing.

The key to a break higher out of the flag and extended upward correction is holding support at $45.5. This is in line with the today’s $45.53 swing low and the flag’s lower trendline. A close below this would call for a test of $45.0, the 62 percent retracement of the move up from $43.76 to $46.98. Settling below $45.0 would shift near-term odds back in favor of testing the $43.76 low again.

This is a brief analysis and outlook for the next day or so. Our weekly Crude Oil Commentary and intra-week updates are much more detailed and thorough energy price forecasts that cover WTI, Brent, RBOB Gasoline, Diesel, and spreads. If you are interested in learning more, please sign up for a complimentary four-week trial.

On Friday, WTI crude oil prices pulled back sharply after the U.S. Federal Reserve signaled short-term interest rates may be raised in coming weeks. The U.S. dollar rose, and oil prices fell. The week ended on a negative note, and the corrective pullback extended again on Monday.

Aside from the stronger dollar, media outlets also indicate traders and analysts are weighing the potential consequences of a still oversupplied market against the prospects of a production freeze. Last week, DOE data showed U.S. inventories of oil and refined products have risen to a record high. However, Iran has reportedly shown interest in joining talks with other major producers regarding measures to freeze production in a unified effort to stabilize prices.

The longer-term technical outlook for oil remains positive. However, near-term factors indicate the corrective decline should continue to extend first. October WTI met the 0.618 projection of the wave $49.36 – 46.42 – 48.46 on Monday. Nearly 80 percent of waves that meet the 0.618 projection extend to the 1.00 projection. Therefore, odds favor $45.5 before the move up continues.

CLV6 20160829

The $45.5 target is important because it is near the 38 percent retracement of the move up from $39.96 to $49.36. A “normal” correction should hold $45.5. A close below $45.5 would open the way for an extended correction and potential trading range in the mid-to-upper $40s.

The move down will remain choppy, but over the next few days look for resistance at $47.9 to hold. Key resistance is $48.7. A move to $48.7 would take out the wave down from $49.36 that projects to $45.5 and lower.

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.

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.

The failure to reach an agreement to freeze crude oil output levels for key producers caused prices to slide in early trading Monday. June WTI gapped down from Friday’s $41.19 low and met crucial support at $39.0. However, the labor strike in Kuwait, which has decreased the nation’s output by nearly 60 percent for the second straight day, lent support to the market. June WTI rose to $41.66 and settled at $41.19 on Monday.

The bounce to $41.66 filled the gap and fulfilled the 1.00 projection of the wave $39.0 – 40.92 – 39.81. The move up may gather some strength from the strike in Kuwait and extend a bit higher on Tuesday. However, from a technical standpoint, the move up from $39.0 was not unusual. Gaps are usually filled, and as stated, the move up from $39.0 has already met technical resistance near $41.66.

CLM6 20160418
crude oil

Without support from bullish fundamentals or further random events (such as the strike in Kuwait), we expect prices to grind their way lower to support at $40.6 and $40.0 over the next few days. $39.0 remains key, and a close below this would open the way for major support in the mid $30s.

That said, a close over $41.7 would call for $42.5 and possibly $42.9. At this point, we don’t expect to see prices rise above $42.9.

This is a brief analysis and outlook for the next day or so. Our weekly Crude Oil Commentary is 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.