Consolidation Under Trendline Signals Precarious Position
Natural gas remains in a precarious, bearish position, consolidating under a long-term uptrend line that previously acted as trend support and now represents potential resistance. This week, a minor higher swing low at $2.86 was established, providing near-term support and indicating the potential for strengthening. Near-term price action forms a falling parallel channel, with a break above the top boundary offering the next bullish signal.
Initial Bullish Signals Require Confirmation
If natural gas can break out of the small channel to the upside, it gains a chance to move higher. Although a trendline breakout offers an initial bullish signal, higher confidence is indicated on a rally above the lower daily high of $3.16 from Monday, followed by an interim swing high at $3.27 from March 19. Depending on timing, a rally above $3.27 may recover the uptrend line, but a daily close above it should ideally be followed by a recovery above the more significant lower swing high at $3.29 from March 9.
Key Resistance Zones to Watch
In addition to considering those price levels, potential trend resistance remains following a recovery of the uptrend line. The falling 50-day moving average at $3.42 and the 200-day moving average at $3.53 combine to form a key resistance zone. Before natural gas can re-enter a long-term rising trend channel, it will first need to trigger a bullish reversal above the lower swing high at $3.49. If achieved, higher targets become attainable. Otherwise, the 50-day moving average remains a critical resistance line to monitor for price reaction.
Downside Risk Remains Elevated
A weakening signal will occur on a drop below this week’s higher swing low of $2.86, placing the trend low at $2.78 at risk, as a break below it triggers a trend continuation signal. Given the long-term bearish posture from consolidation below the uptrend line, a break of $2.78 would indicate a continuation of the bearish trend that followed the January peak at $7.44. However, the more severe signal from a failure of $2.78 is that a bearish reversal would trigger below the higher swing low at $2.62 from August, signaling a further acceleration to the downside.
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