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Bullish rally in recent weeks took natural gas to important levels. What can we expect in the coming week?
Before we find the answer to this question, let’s focus on the recent price action to see what technical events influenced the bulls' behavior. What should you pay attention to next time?
Looking at the daily chart, we see that there were two breakthrough moments, which lured the bulls back to the trading floor and then gave them the wind to move north: a successful breakout above the upper border of the red declining trend channel and a closure of the price gap formed on Dec.11, 2023.
As you see on the chart, the combination of these two resistances stopped the buyers on Dec.20, 2023, and triggered a quite sharp correction, which took the price to the support area based on the green gap formed on Dec. 14, 2023. It withstood the selling pressure, which, together with the buy signals generated by the CCI and the Stochastic Oscillator encouraged the bulls to fight. They didn’t attack rapidly but started a consolidation (marked with light pink on the chart), which discouraged the bears from further pushing the price down.
Thanks to this price action, the bulls successfully climbed above the upper line of the consolidation and the upper line of the red declining trend channel, closing the day above it, which translated into further improvement and attack on the mentioned red gap.
In this way, the buyers gained another ally – the green gap formed on Jan. 2, which stopped the sellers and added even more enthusiasm to fight for higher levels. The volume, which accompanied this improvement, increased from session to session, confirming that the bulls are getting stronger and further increases can be expected.
On Jan. 4 and Jan. 8, natural gas opened sessions with another 2 green gaps, which resulted in a move above the 50% Fibonacci retracement based on the entire Oct.-Dec. downward move. On the following day, a huge white candlestick was formed (on the highest volume in weeks), and the bears lost two other allies: the red gap formed on Dec. 27, 2023, and the 61.8% Fibonacci retracement.
When we take a closer look at the daily chart, we can notice that this upswing took the price to the biggest red gap created during Oct.-Dec. declines, which translated into a pullback. For the first time in many days, the bulls failed against resistance.
This failure took natural gas below the previously broken 61.8% Fibonacci retracement, invalidating the earlier breakout. Yesterday, there was another unsuccessful attempt to break above it, which doesn’t look encouraging.
Additionally, the RSI generated a sell signal for the first time since mid-October. Back then, such development preceded a deeper correction, which suggests that we could see something similar in the coming days – especially when we factor in the current position of the CCI and the Stochastic Oscillator: the first of them remains in its overbought area, increasing the probability of a sell signal in the very near future, while the latter generated a sell signal, giving the bears green light to attack.
On top of that, the volume, which accompanied yesterday’s upswing was visibly lower than the day earlier (during decline), which raises some concerns about the condition of the bulls.
Concerns about a further price increase become even more serious if we take a closer look at the weekly chart below.
From this perspective, we see that the recent upward move took the price to the previously broken lower border of the green rising trend channel, which looks (at least at the first glance) like a verification of the earlier breakdown.
Although we saw a temporary move above this line, the bulls failed to hold it, which means that the outcome of today’s session may bring a significant breakthrough from a technical point of view.
What do I mean by that?
If the buyers manage to close the week above this key line, the breakdown would be invalidated, which could translate into further improvement. This scenario is currently supported by the weekly volume (which was significantly increasing from week to week, confirming bulls’ strength) and the buy signals generated by the weekly indicators (at this point it is worth noting that it would be even more likely if the bulls push the price above the upper border of the orange consolidation marked on the daily chart).
On the other hand, however, if they fail and natural gas closes the week under this line, the probability of a reversal and lower prices in the coming week will significantly increase. Therefore, keeping an eye on today's behavior of market participants can provide us with important and valuable insights for next week.
Summing up, after the bullish rally in recent weeks, natural gas paused and started the consolidation (seen from the daily perspective) under the previously broken lower border of the green rising trend channel (marked on the weekly chart). In my opinion, this could be a moment of truth, which will tip the scales towards buyers or sellers and will probably determine the direction of the next move for the next week.
If you’d like to know what the current technical picture of crude oil is or to find out what arguments the bulls have or what allies do the bears have, I encourage you to subscribe to Oil Trading Alerts, where you’ll find the answers to these (and many other) questions.
Related: Hess Corporation: Bearish Signs and Their Implications