Natural Gas Price Forecast: Breaks Out, but Bearish Reversal Threatens Rally

Natural gas spiked a new trend high of $4.90 on Monday before encountering resistance that led to a sharp intraday sell-off. The advance led to a bullish breakout above the top trendline of a rising parallel channel set after the August 2024 low. However, subsequent intraday weakness warns of a possible failed breakout.

At the time of this writing, natural gas is trading back below the top trendline and in the lower quarter of the day’s trading range, which was $4.45 to $4.90. If it ends the day in a similar position, a bearish shooting star candlestick will be formed.

Bearish Candlestick Pattern Triggers Below $4.45

Although the candlestick pattern shows sellers in charge near the end of the trading session, the pattern doesn’t trigger until there is a drop below today’s low. Nonetheless, today’s price action is short-term bearish since it follows the breakout of a long-term pattern. Rather than seeing interest increase following the breakout, the candle pattern shows demand dissipating. In other words, the bullish signal was not confirmed, and it is therefore the breakout is subject to failure.

Initial Strength Turns Bearish

The breakout showed strength initially as the 38.2% Fibonacci retracement at $4.77 of the full downtrend that began from the 2022 peak was exceeded without hesitation. Subsequently, resistance was seen just below the next higher potential resistance zone defined by a November 2018 peak at $4.93 and a 78.6% target from a rising ABCD pattern (purple) at $4.97.

The ABCD pattern looks for price symmetry or a harmonic relationship between the second leg up (CD) and the first upswing (AB). Typically, a 100% relationship identifies a potentially key pivot level. That is where the price gains between the two swings are similar. Also, Fibonacci relationships are used to provide other potential pivots. The 78.6% level deserves attention today given the bearish reaction following the day’s high.

Key Support at 20-Day MA

It looks like the spike high occurred due to an order imbalance shortly after the opening of Monday’s session, as it largely occurred within one-minute. A bearish pullback began immediately after the high was reached. This might mean that the failed breakout has less of a lagging effect than it might otherwise if demand was stronger initially. Nonetheless, key support remains the 20-Day MA, which is now at $4.04.

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