Natural Gas Price Forecast: Rally Extends, but Risk of Exhaustion Appear

Natural gas strengthened aggressively on Tuesday, reaching a new rally high of $4.01, at the time of this writing. Trading continues near the highs of the day and natural gas will likely end the day near the top of the trading range. This would put it in a position to likely test potential resistance around the 78.6% retracement level at $4.06.

There is the potential for natural gas to end the day with the third highest daily closing price within the current uptrend. That would be a bullish sign and increases the chance that natural gas has completed a bearish correction.

Strong Advance Indicated

Further signs of strength could lead to continued bullish behavior within the next pullback or consolidation. The recent advance has continued to show signs of strength as it advanced, with the more significant being the reclaim of both the 20-Day and 50-Day MAs.

It is interesting to note that earlier in today’s trading session natural gas began the trading session by gapping down and then falling to successfully test support around the 50-Day MA with the day’s low of $3.55. That initial decline provided bearish signals on a drop below the lows of each of the past two days. The market clearly recognized the 50-Day MA price area as the buyers clearly took back control.

Weekly Breakout

There are also a couple signs of strength to be aware of on the weekly chart (not shown). The three-week high at $3.83 was exceeded today, as well as the 200-Week MA, which is at $3.91. Today’s closing price should be above each of those price levels and will therefore confirm the strength of the breakouts.

Given Strength, Pullback Maybe Short

Despite strong bullish indications a pullback could come following a test of the 78.6% retracement, as noted above. There is also a former weekly high at $4.05. It provides a little more attention to that price area. Even if the $4.06 price level is exceeded to the upside the current advance is getting extended.

As of today’s high, natural gas was up by $1.02 or 34.2% from the recent $2.99 swing low. Certainly, it can go higher, but today’s spike is not happening at the beginning of the rally and therefore there might be early signs of exhaustion that has not yet been fully registered by the market.

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