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Natural gas looks to break out as trend lines, battle lines form

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Natural gas looks to break out as trend lines, battle lines form

Naturalgas is nearing a key decision point as the market finds itself wedged betweenconverging levels of support and resistance. Weather and the natural gasinventory figure at the conclusion of the titular injection season may providethe key to which direction prices eventually move.

"Pricesmoved lower on Tuesday ahead of Thursday's report from the Department of Energyon inventories," FX Empire analyst David Becker offered as explanation fornatural gas futures recent failed efforts to climb above $2/MMBtu. "Theweather has been colder than normal for most of the mid-west and east coast,but it appears to be too little too late as inventories are well above their 5-year range."

"Naturalgas markets initially tried to rally during the day on Tuesday, but the areaabove the $2 level seems to be far too resistive for the market to continuegoing higher," FX Empire analyst Christopher Lewis said on Wednesday,April 6.

Whilefundamentals suggest more downside, natural gas bears are also pinning theirhopes on technical signals as a bearish shooting star reversal pattern wasformed in May futures on April 4. The top of the pattern will offer resistanceat $2.074/MMBtu and is important from several different angles because of itshold at multiple resistance levels.

Onthe continuation chart, the reversal peaked around 2 cents above key resistancefrom the 50% retracement of the Jan. 8 to March 4 downtrend at $2.053/MMBtu.The hold there would typically indicate that a fall back toward the March 4 lowat $1.611/MMBtu is possible.

Thetop of the reversal also moved slightly above key resistance from the 100-daymoving average near $2.04/MMBtu and has since fallen back to the downside.

Onthe May futures chart, the reversal was made fairly close to resistance fromthe low on Dec. 16, 2015, at $2.087/MMBtu. The low was taken out as supportduring a selloff in mid-March and is now providing resistance to any rallies.

Inaddition to the holds at resistance, the reversal pattern also created abearish divergence on the daily stochastics oscillator when compared to thehigh on March 18.

Abearish signal was triggered on a crossover down in the daily stochastics,Zaner analysts said. "Momentum studies trending lower at mid-range couldaccelerate a price break if support levels are broken. The close below the9-day moving average is a negative short-term indicator for trend."

"Webelieve that the market does break down eventually, but it might be fairlychoppy in the meantime," Lewis said.

Lookingat the cloud charts, Updata analyst David Linton said, "We are below thecloud on the weekly and below the cloud on the daily charts. While we did justrecover to about $2, we are really struggling to get beyond $2.03 and the longterm picture still is very, very bearish."

Still,while numerous negative factors will continue to offer pressure in the nextweek, weakness may be contained by the approach of support levels.

InMay futures, the 20-day and 40-day moving averages both offer support at$1.931/MMBtu. Slightly below that level will be support from a rising trendlinedrawn off the March 7 and March 28 lows at $1.90/MMBtu.

"Momentumon natural gas prices is positive as the MACD (moving average convergencedivergence) index prints in the black with an upward sloping trajectory whichpoints to higher prices," Becker said.

Butdemonstrating convergence, the RSI, or relative strength index, on the otherhand, moved lower with price action reflecting accelerating negative momentum,while printing a reading of 49, which is in the middle of the neutral range andreflects consolidation, Becker said.

Beckersees support on natural gas prices the 20-day moving average at $1.931/MMBtu,while resistance is seen near the April highs at $2.08/MMBtu.

Market prices and includedindustry data are current as of the time of publication and are subject tochange. For more detailed market data, including our power,naturalgas and coalindex prices, as well as forwardsand futures,visit our Commodities Pages. To view detailed EIA Weekly Natural Gas Storagedata, go to our Natural GasStorage Page.