Natural Gas Price Forecast: Bull Pennant Forms with Breakout Above 2.80

Natural gas has started to trace out a potential bullish pennant pattern as it further consolidates near recent trend highs. It has formed above support represented by both the 20-Day MA and 200-Day MA. An intermediate bullish signal was started last week as the 20-Day line crossed above the 200-Day MA. Today, Monday, natural gas showed strength as it broke out above Friday’s high of 2.62 and kept rallying to a high of 2.80. That high provided a third touch of the top declining boundary line of the pennant, before sellers took back control leading to an intraday pullback.

Small Bull Pennant

The pennant pattern takes the form of a small symmetrical triangle that follows a relatively sharp advance, referred to as the pole. This is a bullish trend continuation pattern that does not become valid until there is a decisive break out of the pattern. Given its small size, a breakout of the pattern will happen within five days or so.

Since this is a bullish pattern, an upside breakout is initially anticipated. Also, the pattern forming around support of the moving averages, especially the 200-Day MA, increases the chance for a bullish breakout. However, a failure of the pattern is always possible. A decline through the lower boundary line signals a pattern failure and increases the chance for a deeper retracement in natural gas.

As it stands now, an upside breakout is triggered on a rise above today’s high, with strength further indicated on a rally above the 2.85 minor swing high. A breakout would be confirmed with a rise above the recent trend high of 2.92, followed by a daily close above that price level.

Target From Pennant

We can calculate a measuring objective from the pattern to identify an initial target of 3.75. To calculate a potential target the pole for the pattern is assumed to have begun at 1.97 on May 2. That is the initial daily breakout that began a period of accelerated upward momentum culminating with the 2.92 trend high. In summary, the pennant identifies a sharp advance that is followed by a consolidation rest period, and then has the potential to lead to another sharp advance. The expectation is that an upside breakout has the potential to rise in an amount equal to or greater than the preceding rally.

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