Natural Gas Price Forecast: Is First Pullback a Buying Opportunity?

So far, the bearish pullback in natural gas from 3.56 high hit last week, has completed a little over a 38.2% Fibonacci retracement of the most recent internal upswing. Support is at 3.18, just shy of a full test of the 3.16 swing high from June and a 50% retracement level at 3.13. Nonetheless, the swing high from Tuesday was 3.53, which subsequently established a lower swing high.

Lower than the 3.56 high from a couple days earlier. Once there is a lower swing high there is an increased chance that that a downtrend may trigger with a drop below Monday’s low at 3.07. Regardless, it increases the chance that lower support levels may be tested even if the 3.07 is not retested.

Falling ABCD Pattern Targets 3.04

It is possible that a falling ABCD pattern is forming, although it is not perfect given the initial AB decline covers only one day. Looking at the pattern on a 4-hour chart (not shown) presents a clearer view of the pattern as the high candle is subsequently reversed. In the daily chart, there has not yet been a drop below last Friday’s low. The initial target from the pattern is 3.04. This essentially extends the next lower target zone around that is around the breakout level for a symmetrical triangle pattern at 3.02 and the 61.8% Fibonacci retracement level, also at 3.02.

Entries Following First Pullback After a Breakout

Natural gas is in the process of its first pullback following a decisive upside breakout of a large symmetrical triangle pattern last week on a rally above 3.02. Buying after the first pullback following a decisive breakout through a key pivot level is one of the better risk management entry strategies and active investors and traders deploy.

The downside is typically relatively narrow, while the upside has the benefit of a bullish pattern on the higher time frames. Market participants are drawn by the growing recognition that a long-term breakout recently occurred. Eventual follow-through to the breakout is anticipated. November ended at the highest monthly closing price for natural gas since October 2023. That is bullish behavior.

Upside Potential Versus Downside Risk

The idea for buying off the first pullback is that since a breakout recently occurred, in an uptrend a bullish reversal has the potential to be the beginning of a new trend (prior trend reversal) or new swing within a larger trend. The price dynamic should provide better upside potential relative to downside risk since a trader can more quickly identify when things aren’t going according to plan and exit relatively early before a larger decline.

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