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Technical indicators suggest more strength for natural gas prices

Technical indicators show a natural gas market poised to extend the upside as the May contract surged Tuesday, April 4, erasing prior-day losses in a rally to new highs.

The contract settled the April 4 session 16.5 cents higher at $3.293/MMBtu after trading in a range from $3.121/MMBtu to $3.301/MMBtu.

"Rebounding from Monday's decline, the natural gas market has essentially held uptrend support at the bottom of the rising price channel drawn beneath the February and March lows in nearby May futures," Citi Futures analyst Tim Evans said.

"The natural gas market turned a successful defense of uptrend support into a rally to new highs," he said.

Natural gas prices sliced through resistance near a downward sloping trend line that comes in near $3.25/MMBtu, FX Empire analyst David Becker said of the April 4 trade.

While there was significant resistance at the $3.25/MMBtu level, the breakout above major resistance there suggests that prices will continue to go much higher, FX Empire analyst Christopher Lewis said.

"The major trend could be turning up with the close back above the 60-day moving average," analysts with the Zaner Group said in an April 5 note. "A bullish signal was given with an upside crossover of the daily stochastics. Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs."

The analysts noted that a positive short-term signal for the uptrend "was given on a close over the 9-bar moving average."

"The outside day up and close above the previous day's high is a positive signal," the Zaner analysts said. "Since the close was above the 2nd swing resistance number, the market's posture is bullish and could see more upside follow-through early in the session."

Early April 5 follow-through buying brought the May contract to a $3.347/MMBtu high, once again testing upside resistance with the possibility of a breakout to the $3.40/MMBtu level.

Zaner analysts see the next upside objective at $3.432/MMBtu.

"Momentum is positive as the moving average convergence divergence index prints in the black with an upward sloping trajectory which points to higher prices," Becker said. "The [relative strength index] moved higher with price action reflecting accelerating positive momentum."

But while the market was moving higher, Lewis warned that "pullbacks continue to be supported below, as the gap showed such resilience by the bullish traders out there."

While from a technical perspective, the spot May contract ended the April 4 trading session back above the support area of the upward trending trading channel, "for the moment the market dodged a bullet in entering into a deeper price correction," Energy Management Institute principal Dominick Chirichella said.

While support is seen at $3.25/MMBtu and the 10-day moving average at $3.17/MMBtu, for now, Chirichella said, "The spot contract is close to testing the upper resistance area of the trading channel."

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power, natural gas index prices, as well as forwards and futures, visit our Commodities Pages.