Natural Gas Trend Will Continue
08/22/2011 10:30 am EST
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.
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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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.
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.
By Greg Harmon of Dragonfly Capital