Natural Gas: Apr 8, 2013

I’ve been watching natural gas for the past few weeks, an interesting chart as suggested by a member.  One quick caveat: I don’t follow the industry, nor do I have an opinion on the fundamentals.  This is simply a read of the current charts as I see them.

NG has been exceptionally volatile over the years.  As seen in the chart below, there are a few key channels that have guided prices over the longer term.  Since the 2005 peak, the most influential candidates appear to be the well-formed falling red and yellow channels.

Regardless of which channel ultimately holds, NG has clearly broken above the red midline, the yellow .75 line,  and a trend line (yellow, dashed) connecting several important lows.  For this reason, NG appears to have continued strong upside potential in the near term — perhaps another 10% or so to the 4.50 – 4.69 range.

Note the tight cluster of Fib levels there: the purple .886, the white .618 and the yellow .236.  They intersect with the yellow channel top later this year (beginning around September.) So, either the torrid pace of the past two months will ease, or — more likely — NG will trace out a more complex path between now and then.

NG has completed a 1.272 extension of the drop from 3.93 to 3.05 (Nov 12 – Jan 2) right at the rising purple channel midline.  The prior reversal (Point B) came near the .618, so NG will likely form a Crab Pattern at the 1.618 extension (4.48.)

If I’ve charted the purple channel correctly, look for it around May 24 following a pause that could range anywhere from the bottom of the purple channel (3.50) to a more likely back test of the red midline (around 3.83) or prior high (3.93.)

Traders would do well to watch the small, rising white channel for an indication of which.  If it breaks down, the purple channel bottom or .25 should provide key support.  But, that could mean a substantial drop from current prices.


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