Natural Gas (Henry Hub) has been in a downward consolidation pattern since the beginning of 2017 when it began to decline from the strong 2016 year which had the price ending at $3.90/MMBtu. It has been bouncing in a downwards descending triangle pattern with support around $2.80/MMbtu throughout 2017. Some would argue it looks like an unconfirmed head and shoulders pattern. However instead of completing the bearish pattern, the price has broken upwards in September 2017 and appears to have a number of technical indications for a potential incoming bull stretch.
Looking at the weekly chart we can see the breakout in price action which was nicely met with large amounts of volume coming in. In addition, the weekly 50 SMA and weekly 200 SMA look to be acting as support at this levels are appear to be about to cross. This is a strong weekly golden cross indication.
Still on the weekly chart and zooming into the past years price action, we can see that in the past couple of weeks after the breakout, the weekly 20 EMA decided that it was not going to cross below the 50 EMA which has acted as support with the $2.80/MMBtu pivot. As the price stays above the weekly 20 EMA and it begins to rise, this is a bullish signal in the intermediate term.
The daily chart gives more confirmation of bullish strength. After the breakout, the price has been acting technically well by bouncing from the 1.272 and 0.764 Fibonacci retracement levels. Furthermore the recent pullback support was met with the daily 20 EMA.
When analyzing the market sentiment, we can use the On Balance Volume (OBV) indicator. On the daily chart there has been a bullish break in the OBV trend indicating buyers are starting to enter the market and a trend is forming. Furthermore, it appears as if we may see a golden cross on a daily level. The next target we anticipate for natural gas is the next Fib level at $3.35/MMBtu where there was also previous resistance. It would be healthy to see a pullback at those levels and then test previous $3.90/MMBtu highs at the beginning of this year.
Unfortunately the previous levels of the 50 and 200 SMA did not hold support and the price of natural gas ended up falling down to about $2.80/MMBtu where it found major support. The latest candle shows a gap up from the major support with oscillators favoring another attempt at the upside. The OBV trend is indicating that buyers are still in the market and have not sold off yet – another good sign. Next major level will be at $3.00/MMBtu which coincides with both the moving averages and if it clears that, we could be seeing $3.35/MMBtu in the intermediate term.
We got the MACD crossover coupled with the Stochastic RSI with that gap up and continued higher over the next two trading days reaching at the current resistance level of $3.20/MMBtu. Should this break higher, the first intermediate-term target is about $3.40/MMBtu and the second is $3.75/MMBtu. We will be watching closely as these are critical levels to confirm the triangle breakout. An influx in volume would be a bonus if we break through current levels.