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TECHNICAL ANALYSIS


Have Natural Gas Prices Put In A Significant Bottom?

10/13/03 10:02:13 AM
by Kevin Hopson

Natural gas prices have been declining for several months now but there are indications that the trend has reversed.

Security:   $NATGAS
Position:   N/A

Natural gas prices have continued to fall after topping out this past February, which happened to be a very volatile month for the related futures market. Though volatility has eased since then, there have been signs of a forthcoming bottom. For example, in the chart of the continuous natural gas, if we highlight the major turning points over the last seven months, it appears that it has completed the final swing of its downtrend.

Also supporting this theory are the moving average convergence/divergence (MACD) indicator and the large falling wedge formation. More specifically, the MACD - as indicated by the blue line at the bottom of the chart - has been in a steady uptrend since mid-March despite prices having continued to decline. This is a bullish divergence on the chart and usually signals a developing bottom. The large falling wedge formation - as illustrated by the black trendlines - was another bullish sign. For example, since falling wedges tend to break to the upside, an eventual reversal in natural gas prices could have been anticipated.

Graphic provided by: Stockcharts.com.
 
As you can see, a reversal occurred earlier this month, as natural gas prices proceeded to break out of the seven-month falling wedge formation. So what is next? Well, prices, which recently closed above the 200-day moving average, are currently bumping up against the 50 percent retracement level from the June-Sept. decline. If this resistance level can be taken out, natural gas prices could see a further rally up to $5.86, site of the 61.8 percent retracement level from the June-Sept. decline and the top blue parallel line.



Kevin Hopson

Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.

Glen Allen, VA
E-mail address: hopson_1@yahoo.com

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Date: 10/29/03Rank: 3Comment: 
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