Chart Advisor: Rising Natural Gas

By Dean Rogers, CMT

1/ Natural Gas Continuation Chart

2/ NGX24 Daily Chart

3/ NGX24 Daily Indicators

4/ NGX24 Table

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1/

Confirmed Double Bottom

Natural gas has been on the rise in recent weeks after holding the smaller than (0.618) Fibonacci extension of the largest wave down from $3.630 (dark cyan) at $1.83 and the 78 percent retracement of the rise from $1.481 (blue) at $1.85 on the continuation chart. 

Courtesy of TradeStation

A double bottom formed at $1.856 and the move up confirmed this reversal pattern by settling above the $2.301 swing high on September 12. The target of the double bottom is $2.75, which is also the larger than (1.618) target of the wave up from $2.125 (orange). The connection to $2.75 is made through confluent wave extensions and retracement levels at $2.47, $2.56, and $2.66 on the continuation chart. 

The move up on the continuation chart will likely get a boost to fulfill the $2.75 target of the double bottom when the October contract settles on Thursday, September 26 and the November contract becomes prompt on Friday, September 27. 

2/

Support and Resistance

The November contract settled the week $0.285 higher than October at $2.719 after testing and holding the $2.74 intermediate (1.382) target of the wave up from $2.439 (red). This is also the 78 percent retracement of the decline from $2.829 (orange). Another test of $2.74 is anticipated within the next few days. Closing above this will call for a test of the larger than (1.618) target of the wave up from $2.439, the intermediate (1.382) target of the wave up from $2.497, and the 89 percent retracement of the decline from $2.829 at $2.77. 

Courtesy of TradeStation

Note that November’s $2.77 target is in line with the $2.75 target of the $1.856 double bottom on the continuation chart. November will likely reach $2.77 before the October contract expires and the November contract becomes the prompt month. 

Given the confluence of $2.77, this objective could be a stalling point. However, a double bottom on the November chart that formed around $2.445, comprised of the $2.450 and $2.439 swing lows, suggests that a bullish reversal is underway. Therefore, a pullback will likely be a simple correction, and an eventual close above $2.77 is expected. This will clear the way for a test of $2.83, a close above which will confirm November’s $2.445 double bottom. This pattern would then target $3.20. 

Settling above $2.77 will also open the way for a test of an important target at $2.88. This is the 38 percent retracement of the decline from $3.560 (pink) on the November chart. More importantly, this is the smaller than (0.618) target of the wave up from $1.481 (red) on the continuation chart. The $2.88 objective is a longer-term bullish decision point because a sustained close above $2.88 would call for this wave to fulfill its $3.53 equal to (1.00) target in the coming months. 

3/

Momentum and Trend Indicators

The likelihood of a bullish reversal on the November chart is also increased due to the confirmation of weekly bullish RSI, Stochastic, and MACD divergences at the $2.439 swing low. There was also a weekly weak KaseCD divergence and KCDpeak (oversold signal) confirmed at the $2.450 swing low. These signals were negated by the decline to $2.439 but remain a factor given the double bottom that formed around these swing lows. 

Courtesy of TradeStation

Trend indicators are also starting to reflect bullish sentiment on the November chart. The daily Kase Trend indicator flipped to bullish on Friday and the 10-day DMI triggered a bullish crossover. The ADX is above 20 but falling, so the move up may continue to be a grind or form a DMI necklace effect (rangebound trading) for the interim. 

Aside from holding the $2.74 confluence point, another challenge for the move up early next week is the fact that Friday settled above the upper Bollinger Band. Unless a stronger uptrend begins to develop and prices walk the band, this warns that a test of support might take place before November reaches $2.77 and higher. 

4/

Target and Probabilities Table

In summary, the outlook for natural gas is bullish for the coming weeks. The November chart has a 75 percent chance of reaching the $2.77 objective within a tolerance of +/- $0.012. Settling above $2.77 will call for a test of the $2.83 confirmation point of November’s double bottom, a close above which will clear the way for a test of a longer-term $2.88 bullish decision point on the continuation chart.  

Courtesy of TradeStation

Any pullback will likely be a correction and the 38 percent retracement of the rise from November’s $2.439 (blue) swing low at $2.63 is expected to hold. Settling below $2.63 will imply that the move down is more than a simple correction. The next major threshold is the 62 percent retracement at $2.56. Closing below $2.56 would strongly suggest that the move up has failed and call for key support at $2.50 to be challenged. This is the smaller than (0.618) target of the wave down from $2.829 (light blue) and connects to $2.34 and lower. Thus, the outlook for the November contract in the coming weeks would become bearish upon a close below $2.50, which currently has a 25 percent chance of occurring. 

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Originally posted 23rd September, 2024

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