Technical Insights: Natural Gas Faces Resistance but Seeks Higher Ground

Natural Gas Forecast Video for 28.12.23 by Bruce Powers

Further tests of resistance around the 20-Day MA occurred again today, for the fourth day in a row, and it held leading to an intraday decline. Today’s high of 2.57 tested resistance at the 20-Day line of 2.56 and price was rejected to the downside. In addition, support was tested with a day’s low of 2.43. Six-day support and a minor swing low sit at 2.385. If the price of natural gas stays above 2.43, the chance for a continuation higher remains.

Resistance at 20-Day MA Persists, Testing Market Resilience

Notice that over the past couple of days natural gas has completed a lower daily high as it tracks resistance at the declining 20-Day MA. While the market is clearly recognizing the 20-Day line as resistance, it also retains the near-term downtrend structure by staying below the 20-Day line. This shows downward pressure remaining in natural gas with the risk of a bearish continuation retained.

Due to the Recent Correction, a Higher Retracement is Possible

Even if lower prices are part of the plan a higher retracement of the recent decline seems to be a real possibility first. The recent swing low at 2.235 on December 13 completed the largest correction in the price of natural gas since the February 2023 bottom. It fell by 38.7% from the October 27 swing high and trend high to the December 13 swing low. Momentum, based on the relative strength index (RSI), reached extreme oversold conditions by the 2.235 low. February of this year was the last time the RSI dipped so low.

Supporting Indications for an Eventual Continuation Higher

Although the bigger picture shows the breakdown of a bear flag in late-November a continuation of the counter-trend rally to test higher resistance areas seems likely. Technically, a rising ABCD pattern completed at last week’s high of 2.62. However, it is not well formed, and a typical counter-trend rally would have a clearer ABCD pattern with a higher retracement. Moreover, notice the relationship between price and the long-term downtrend line. It was breached recently but price quickly recovered to rise back above the line.

Traders Weigh Options: Buy on Weakness or Await an Upside Breakout

Traders will likely take two basic approaches to the current technical scenario. Either look to buy on further weakness in anticipation of a continuation higher or wait for an upside breakout. A breakout above today’s high of 2.57 provides a sign of strength, which is then confirmed on a rally above last week’s high of 2.62.