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TECHNICAL ANALYSIS


Natural Gas: Tentative Reversal Signs

07/16/20 01:34:14 PM
by Fawad Razaqzada

Natural gas prices have not been able to recover as strongly as some of the other commodities post lockdown. In fact, prices remain near their historic lows after a small recovery, due to concerns over excessive supply and weak demand. However, while the downward trend remains intact, natural gas has created tentative bullish technical signals which suggest at least a medium-term low may have been created.

Security:   NG1!
Position:   N/A

Natural gas prices relinquished a good chunk of their gains made earlier last week by Thursday, July 9, on persistent worries that renewed lockdowns to contain the spread of Covid-19 in the US would again weigh on gas consumption, adding to worries over weak exports of liquefied natural gas (LNG). However, the weather is expected to be hotter than normal for most of the US for the next couple of weeks, which should increase cooling demand. This in turn may offset the negative impact arising from the slowing of the reopening of the US economy. So prices may stop falling again, even if concerns over excessive supply will not completely go away.

Meanwhile, from a technical point of view, natural gas has created tentative bullish signals suggesting a low may have been created — though some confirmation is still required to validate the bullish technical outlook.

Figure 1. Weekly chart for Natural Gas Futures.
Graphic provided by: TradingView.
 
The key development I have observed is the fact the sellers have had many attempts at breaking below the 2016 low of $1.611 per million British thermal units but have repeatedly failed. The last attempt was made a few weeks ago and for a while it looked like this level had finally given way. But the bulls bought the dip aggressively after prices made a 25-year low at the end of June.

The resulting rebound caused a bullish-engulfing-like candle to be formed on the weekly chart as we transitioned to the first week of July. In the second week of July, there was some bullish follow-through before prices fell back by Thursday, July 9 (when this report was written). Natural gas was still holding onto a small weekly gain, and above key short-term support at $1.720 and thus above that pivotal level of $1.611. Meanwhile, the Relative Strength Index (RSI) was displaying a higher low near oversold levels, despite price making a lower low. In other words, there was a positive divergence on the RSI, suggesting that the bearish pressure was weakening.

With gas prices being near their historic lows and given the above tentative bullish signs, I am now on the lookout for further bullish price action to confirm a low is indeed made. One such confirmation could come in the form of a breakout from the bearish channel in which prices are currently contained. A weekly close above $1.900 could be the trigger many would-be bulls are potentially waiting for, because if this happens prices will have moved out of the bearish channel.



Fawad Razaqzada

Fawad Razaqzada is an experienced analyst and economist having been involved in the financial markets since 2010 working for leading global FX and CFD brokerages. Having graduated with a degree in economics and leveraging years of financial market experience, Fawad provides retail and professional traders worldwide with succinct fundamental & technical analysis. In addition, he also offers premium trade signals to subscribers, and trading education to help shorten the learning curves of developing traders. He has also been trading on his personal account for many years. Follow Fawad on twitter @Trader_F_R or visit his website at TradingCandles.com.

Title: Financial Market Analyst
Company: TradingCandles.com
London,
Website: tradingcandles.com
E-mail address: fawad.razaqzada@hotmail.co.uk

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