Natural Gas rice Forecast: Faces Resistance After 31% Rally

Natural gas rallied to a new high of $3.75 for the counter-trend rally on Monday, before encountering resistance and lower prices. A breakdown from that pattern was triggered in early April. The high for the day was a successful test of resistance at the neckline of a recent head and shoulders top pattern. Also, the resistance area is confirmed by the 61.8% Fibonacci retracement at $3.72 and the AVWAP (light blue) from the recent trend high at $3.74. Together, these indicators identify a potentially significant resistance zone. Judging by the subsequent bearish reaction natural gas looked poised by a deeper pullback.

Bearish Monday

At the time of this writing natural gas continues to trade near the lows of the day and looks likely to close in a similar bearish position. Subsequently, a drop below today’s low will signal a one-day bearish reversal that will likely lead to a pullback to test lower support levels. A key price zone to watch is around the convergence of two indicator lines. Potential support represented by the AVWAP line from the recent low at $3.36 and the 20-Day MA at $3.34. Notice that the typical minimum 38.2% Fibonacci retracement is a little higher at $3.41.

20-Day MA Key Target

The 50% retracement of the recent advance is at $3.30. Since the 20-Day MA continues to trend down it could converge with the 50% level soon. Two or more indicators identifying a similar price area strengthens the potential significance of the zone. Since the 20-Day line was clearly recognized as resistance over two days last week, a pullback to test support around the line should see signs of support if the strength in the counter trend rally is to be sustained.

Rest Healthy for Bull Trend

A bearish pullback prior to an attempt to move higher would be healthy for the price of natural gas. As of the high today, natural gas was up by $0.89 or 31.1% in six days. That is a sign of strength but also an indication that the price of natural gas may be extended and due for pullback. In addition to recent bullish price action, a declining trendline on the relative strength index (RSI) was recently broken thereby confirming bullish momentum. That supports the idea that a pullback should be followed by further signs of strength.

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