Natural gas triggers a sharp breakout to new trend highs today following yesterday’s failed attempt. Yesterday, natural gas advanced above the prior trend high (swing high) of 3.02 but did not close above it, which was needed to confirm the breakout. Rather, it closed weak, with a potential bearish inverted hammer candlestick pattern.
Nevertheless, that bearish pattern was successfully negated today as natural gas spiked back through 3.02 high and kept rising. At the time of this writing buying pressure remains with trading occurring near the high of the day, which was at 3.205.
Today’s advance took natural gas further above the long-term downtrend line and today should be the third day in a row that the closing price is above the line. Each of these indications is bullish overall and may reflect a change in character from trading dominated by sellers to buyers taking the lead. Further confirmation will be needed, however, and there are additional technical barriers to overcome.
The high today reached a key target of the 200-Day EMA. It is at 3.17 currently and supported by the completion of a Fibonacci extension level at 3.18. That is where the greater than 100% retracement (127.2%) measuring the decline starting from the August 9 peak of 3.02 completes. In other words, two indicators point to the same price area as potential resistance. This is the first time that the 200-Day EMA has been tested as resistance.
Natural gas has been trading steadily below the 200-Day line since last December. Whether it behaves as resistance during this first test remains to be seen. So far, the advance has stalled with natural gas sitting just above support of the 200-Day EMA. This would be an obvious area to see supply increase putting downward pressure on price. However, a decisive rise above today’s high signals a possible bullish continuation.
Following the April trend low natural gas has been advancing in a relatively well-formed parallel trend channel. You can argue about exactly where the top channel line should be place, but regardless another touch of the top line is a real possibility. Higher targets include the 23.6% Fibonacci retracement at 3.28, followed by 3.38. The higher target is a 161.8% Fibonacci extension of the correction starting from the August 9 peak.
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