Oil & Gas - Energy - Commodities - Resources (OILBRENT)

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Natural Gas Rallies to 2.80, Will It Hold?
By: Bruce Powers | May 21, 2024

• Natural gas hit a high of 2.80, completing a significant 76.8% rally from the April low of 1.58.

Natural gas hit a new trend high of 2.80 on Tuesday, thereby completing a 1.21 point or 76.8% rally from the April 25 low at 1.58. The new high has some significance as it is the completion of a 250% extension of a rising ABCD pattern. It shows the CD leg of the pattern up by 2.5x the price appreciation seen in the AB leg of the advance. Judging by the bearish intraday reaction once 2.80 was reached, it seems the market is aware of the relationship between the swings.



Next Moves Provide Clues

Follow through will be key. There remain higher target areas starting from 2.86 to 2.88. That zone includes an extended rising ABCD pattern at 2.86, which is calculated using 2.618x the advance seen in the AB leg instead of 2.5x. It sits with the June 2023 swing high at 2.88. Then, higher up from there is the 78.6% Fibonacci retracement at 2.99. Those higher targets may yet be reached but given an initial bearish reaction to reaching the 2.80 target, maybe not until there is some degree of a pullback and/or consolidation.

Caution Warranted by the Bulls

There are several additional reasons for caution following today’s high. The relative strength index (RSI) is the most overbought since the peak in in the price of natural gas in April 2022. Also, there is a concern about time symmetry. The current advance has been developing for 18 trading days. Two of the previous four rallies that followed the February 2023 trend high have lasted 18 days. Moreover, the current advance of 76.8% significantly improved on the 53.9% rally from the February 2023 trend low. That 53.9% rally had the strongest performance of subsequent rallies until the current.

Resistance and Support

A decisive advance above today’s high of 2.80 would provide the next bullish signal and give natural gas a chance to reach the 2.86 target zone. Also, a drop through today’s low of 2.64 provides a short-term bearish signal that may lead to a deeper pullback. Key support is around the 200-Day MA at 2.46. Below there is a 2.40 to 2.38 price zone. The 20-Day MA is down at 2.21.

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