Rising Channel in Natural Gas Projects Lower Prices
Natural gas has been testing dynamic support around the 50-week moving average (orange) this week and is at risk of breaking below it. Since the 50-week line was reclaimed in mid-September of last year, the area around the line was successfully tested as support several times. On two of those occasions the price of natural gas fell below the 50-week line for a brief period before support was seen followed by a rally. A similar response might occur in the current decline as the low for the week at the time of this writing was $3.15, below the 50-week line, now at $3.23. This doesn’t rule out a deeper bearish correction because the possibility of a quick recovery of the 50-week moving average won’t be known until it is reclaimed.
AVWAP to Converge with Trendline
Support at the April low was marked by a long-term anchored volume weighted average price (AVWAP) line that was confirmed as support at the October swing low and the April swing low. In each instance, a bullish reversal followed a touch of the AVWAP (light blue). Therefore, a similar response may occur again. Since the AVWAP line is now at $2.95, it represents a lower potential target for the current decline. However, it is joined by a long-term uptrend line that begins from the 2024 lows and a possible pivot around $3.16. That price area has seen support or resistance multiple times since March 2023. The AVWAP will soon converge with the other lines and therefore the three lines by pointing to a potentially more significant support area than what has been since the March trend high.
Channel Support Lower Targets
Since 2024 natural gas has advanced within a large parallel trend channel. The channel shows symmetry within the trend structure and the pattern was confirmed several times during the last rally. Notice that price was rejected from the top channel line for more than a few days starting at the end of 2024. Once there is a reversal from one side of the pattern the other side becomes a potential target. Since sellers remain in charge and two trendlines were busted this week, the possibility that the lower line might eventually be reached before a full completion of the bearish correction remains a real possibility.
Sustained Rally Above 200-Day Moving Average Attracts Buyers
A sustained rally above the 200-day moving average, now at $3.43, would be needed before the outlook for natural gas begins to improve. And that should be followed by an advance above an interim swing high at $3.57 to confirm strength. Until there is a confirmed reclaim of the 200-day moving average, bounces towards the line will likely see strong resistance. There were a couple dips before the 200-day line recently and they were each followed by a decisive rally. If natural gas extends to more than four days below the 200-day line, it will have exceeded the time to recovery seen in April. That would show relative weakness and support the above bearish scenario.
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