Natural Gas Trend Will Continue

08/22/2011 10:30 am EST

Focus: COMMODITIES

A number of key technical and fundamental forces continue to weigh on natural gas, a likely indication that more downside price movement could lie ahead.

Natural gas futures have been the problem child in the energy space since making a double top in mid-2008. Recently, prices seem to have settled into a groove, but we are again at risk of a major price move lower. And with crude oil prices falling, the macro outlook is already stacked against it.

From the monthly chart below, you can see natural gas had a sharp move lower and then bounced. Now it has been in a channel between $3.90 and $4.90 for over 18 months. It is interesting on this time frame as it tests the bottom of the channel because a break below it sees support next at $3.32, the rising 12-year trend line support.

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Zooming in on a weekly chart below shows it is also testing support of an ascending triangle. The target on a breakdown out of the triangle is all the way down to $2.00. On this time frame, it has a falling Relative Strength Index (RSI) and a Moving Average Convergence Divergence (MACD) indicator that is growing more negative. These both support a lower move.

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NEXT: Key Fibonacci Levels, Latest Chart for Natural Gas ETF UNG

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Finally, the Fibonacci view below on the weekly chart shows the oscillation also fits the range between the 38.2% and 61.8% Fibonacci levels measuring the move from the 2009 low to the turn-of-the-year high. A loss of support of the 61.8% Fibonacci level sees support next at the fan line near $3.50 and then at $3.28, the 76.4% Fibonacci level.

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So you see where the broad market and crude oil have been having a rough go of it lately.

The United States Natural Gas Fund (UNG) needs to bounce off of these support levels or risk being the new “new thing” going lower.

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By Greg Harmon of Dragonfly Capital

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