Natural gas’ decline stalled at $2.567 on February 6. This was near the very crucial bearish decision point of $2.52. Subsequently prices have risen to $2.857. The market is likely settling into a range that is being supported by external factors (i.e. cold weather), but is searching for the upper end of this range.
A confirmed daily morning star and a few weak momentum signals (white arrows) on KaseX indicate the upward correction should extend. However, the correction met and held the 38 percent retracement from $3.299 to $2.567 at $2.85. In addition, KaseX has already generated a short warning (yellow down triangle), and prices are sitting just below the crucial $2.79 level. The $2.79 level has been major support for week, and it is now key resistance. It was tested one and held already on February 3, so a close over this would be positive for the near term.
Overall, the charts and technical factors discussed indicate that traders are anticipating a bullish U.S. Energy Information Administration (EIA) Natural Gas Weekly Update tomorrow. However, there is some uncertainty to this move, which is why prices backed off the $2.857 swing high morning and are hovering around $2.79.
A close over $2.79 would open the way for $2.85 again, and likely $3.02, which is the 62 percent retracement from $3.299. The $3.02 level should hold unless tomorrow’s EIA number is much more bullish than anticipated. A close below $2.79 would call for $2.68 to be challenged. This is the 62 percent retracement from $2.567 to $2.857. A close below this would then call for another test of the $2.52 decision point.
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WTI crude oil is trying desperately to show that a bottom has been made and that a recovery is underway. WTI is testing a crucial decision point at $54.0. This is the 0.618 projection for the wave, $43.58 – 54.24 – 47.36. Most waves that meet the 0.618 projection extend to at least the 1.00 projection, in this case, $58.0. However, a pullback will usually take place first.
Support at $49.9 should hold, but the $47.36 swing low is the level that must hold for the near-term outlook to remain positive. A close below this would negate the wave up from $43.58, and call for a continued decline.
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For several weeks $2.79 was major support for natural gas. This level was tested many times, and was finally broken after last week’s bearish U.S. Energy Information Administration (EIA) Natural Gas Weekly Update.
Subsequently, prices have fallen to a $2.608 contract low, and $2.79 has become near-term resistance. The $2.79 level is the completion point for a bullish morning star setup, and was tested on Tuesday when prices rose to $2.783. This level is expected to hold for at least the next few days.
As of this analysis, Wednesday’s decline has setup a pseudo bearish engulfing line. The bearish engulfing line and other technical factors indicate another bearish EIA number may be expected tomorrow.
Trading will likely be extremely choppy over the next few days, but look for $2.79 to hold and for prices to challenge the $2.608 swing low. Ultimately, the decline is expected to extend to the next major target and bearish decision point at $2.52.
Conversely, a close over $2.79 in the next few days would complete the bullish morning star setup and open the way for an extended correction to the $2.852 confirmation point.
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NY Harbor ULSD future’s upward correction extended to 177.7 on Monday. The primary wave 158.9 – 171.7 – 160.5, met its 1.382 projection at 177.7 and is poised to extend to the 1.618 projection of 184.2. This is the decision point for an extended correction and potential recovery. Although it is too early to say that a bottom has been made, a sustained close over 184.2 would open the way for 198.7 and 217.7. A close below 164.3 would indicate the upward correction is complete and call for 153.2 and lower.
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Natural gas has positioned itself for a break out of the recent coiling pattern that began forming on January 20. March futures tested the crucial $2.79 area this morning, and most technical factors still favor continued decline. However, March’s inability to close below $2.79 is making this recent range look more like a short-term bottoming formation versus a corrective pattern. In addition, a bullish KasePO divergence and first class long permissions (blue dots) for the KEES indicator on the 240-minute equivalent Kase Bar chart indicate prices may attempt to rise above $3.01 again after tomorrow’s U.S. Energy Information Administration (EIA) Natural Gas Weekly Update.
The key for a break higher will be a close over $2.97. This is the 0.618 projection for the wave $2.762 – 3.957 – 2.81. March already stalled at this level once, but overcoming $2.97 would open the way for $3.01, which then connects to $3.08 as the 1.382 projection. The $3.08 level is also near the top of the window that took place between January 16 and 20, so a close over this in coming days would be bullish for the near-term outlook.
That said, even though March has held $2.79 on a closing basis thus far, it has not been able to maintain momentum behind any recent price rise. If natural gas cannot break higher this week, the odds of an extended upward correction will quickly diminish. A close below $2.79 would then open the way for the next leg down, where the first target of that move is $2.71.
Last week’s natural gas price rise was poised to fill December 22nd’s gap from $3.48, but the upward correction stalled at $3.352. The week settled above the $3.09 midpoint of Wednesday, January 12th’s candlestick, leading to speculation that the market might try to rise again early this week. However, Monday’s intraday gap down from $3.056 and settle back below $3.00 was negative for the near-term outlook.
There is still major support at $2.80 that has held so far, but after this morning’s move up stalled and failed to fill to $3.056 gap it looks as though a bearish U.S. Energy Information Administration (EIA) Natural Gas Weekly Update is expected tomorrow.
The key wave for the short-term is $3.352 – 3.024 – 3.228. This wave has already fallen below its 1.00 projection at $2.90 and is poised to meet at least its 1.382 projection at $2.77. This then connects to $2.66 as the 1.618 projection. The $2.66 target is highly confluent for many of the larger and earlier waves down, and is the 0.618 projection for the wave $3.95 – 2.783 – 3.352. The confluence is important because a sustained close below $2.63 would open the way for a decline into the mid-to-low $2’s over the course of the longer-term. Therefore, $2.63 is a potential stalling point for the decline.
The KaseX indicator on the 240-minute equivalent Kase Bar (KBAR) also confirms the negative outlook and has generated several short signals (purple arrows) during the decline from $3.352. The most recent short signal came after the $3.015 swing high this morning. At this point, there are no warning signals that indicate profit should be taken or that short trades should be exited. This will likely change though should prices recover above the $3.015 swing high.
First resistance ahead of the EIA report is $3.06, which is near the top of the $3.056 gap. A move above this would call for 3.15, which is the 0.618 projection for the wave $2.783 – 3.352 – 2.821. The $3.15 level is confirmed as the 62 percent retracement from $3.352 to $2.821. It is also interesting to note that this morning’s rise to $3.015 stalled just below the 38 percent retracement at $3.02. This is another negative factor.
To summarize, the bias is negative, and the move down is expected to continue. There is strong support at $2.80, but a move below this would call for at least $2.77 and very likely $2.66. Resistance at $3.06 will likely hold, but a move above that would open the way for at least $3.15.
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Brent has been trading in a corrective range for the past several days, but fell to major support at $47.7 on Tuesday. This is the 0.618 projection for the wave $52.42 – 48.07 – 50.41. The $47.7 projection connects to a major target at $45.8 as the 1.00 projection. This is also the 1.618 projection for the largest and most important wave down from the $111.38 contract high. KaseX confirms the negative call with confirmed short signals (purple triangles) on the 120-minute equivalent Kase Bar chart.
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Natural gas has finally showed some signs of life over the past few days in anticipation of tomorrow’s U.S. Energy Information Administration (EIA) Natural Gas Weekly Update. The short-term charts are showing that traders are anticipating a bullish EIA report, which would be the support the market needs to continue this upward correction. Keep in mind though, this is a correction, and it will likely be predominant in the winter month contracts and short-lived without continued support from external factors.
After oscillating in a sideways range between approximately $2.79 and $3.00 for the past six trading sessions, the February futures contract rose above $3.00 on Wednesday. This is near the $3.176 to $2.783 midpoint of $2.98, which is significant because this is also in line with the 0.618 projection of the irregular wave $2.803 – 3.176 – 2.783. The $1.00 projection of this wave was overcome at $3.15, and the 1.618 projections is $3.38. The $3.38 level is important because it is the 50 percent retracement from $3.95 to $2.783. This level will likely be met, and possibly overcome, upon a bullish EIA number tomorrow.
In addition, February overcame the crucial $3.176 swing high, and a sustained close over this would confirm the recent bottoming formation (arguably a triple or even quadruple bottom). The projection for this formation is $3.56.
Near-term support is $3.04 and then $2.94. These are the 38 percent and 62 percent retracements of the move up from $2.783 to $3.204 (swing high as of this analysis). These levels are also near the midpoint and open of today’s candlestick. A close back below $3.04 would call into question the validity of the move up. A close below $2.94 would negate the near-term positive tone altogether, and open the way for a continued decline.
The long-term outlook for natural gas is bearish, but the move up over the past two days has shifted the near-term outlook to positive. A close over the $3.176 swing high today will open the way for an extended correction to $3.38 and possibly higher tomorrow.
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Kase and Company, Inc.
The outlook for natural gas is negative, and without help from external factors the decline will likely continue. However, the market is hesitant to break support at $2.80 in the near-term, and is likely waiting on tomorrow’s U.S. Energy Information Administration (EIA) Natural Gas Weekly Update before it presses higher or continues to decline.
Several positive technical factors indicate resistance will likely be tested before tomorrow’s EIA report. A small intraday double bottom formed at $2.805, as shown on the 120-minute equivalent Kase Bar chart. The confirmation point for the double bottom is $3.176, which is in line with the 1.00 projection for the wave $2.805 – 3.176 – 2.811. Immediate resistance is $3.04, the 0.618 projection. A move above $3.04 would call for $3.176 to be challenged, and a close over $3.176 would confirm the double bottom. This would then open the way for an extended correction to targets between $3.18 and the double bottom’s $3.54 target (calculation is 3.176 + (3.176 – 2.805) = 3.537). A move of this magnitude will not likely take place without major support from bullish external factors.
Should $3.176 hold, the move down will likely extend. First support is $2.89, and a close below this would call for a key target at $2.79. This is the 0.618 projection for the wave $3.176 – 2.811 – 3.012. A close below $2.79 would negate the double bottom and open the way for targets in the mid $2s.
Overall, the outlook is negative, and the move down is still favored. However, the double bottom, a daily morning star setup, and deeply oversold conditions, all indicate that a correction may take place very soon, and could be spurred by tomorrow’s EIA report.
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Kase’s senior analyst Dean Rogers reviews trade setups and price forecasts for e-mini S&P 500 and WTI Crude Oil.