In our September update [see: Sep 14 NG Update], we identified some bounce targets that would naturally follow the completion of a Bat Pattern in natural gas.  But, we also noted that NG, like oil, was being suppressed in order to facilitate the yen carry trade.

But, like CL, NG is being artificially suppressed in order to facilitate a cheaper yen.  When it comes to Japan, it remains to be seen whether central bankers can handle that kind of inflationary pressure.

If, instead, they wish to manipulate it lower, the white channel bottom down around 2.00 would make a nice downside target.

Six weeks later, NG tagged that downside target — dipping slightly below it to 1.948, a stunning 30% drop.  The 26% bounce to 2.48 in mid-November was nearly as impressive.  When NG retraced a 78.6% of that rise last Friday, I didn’t think too much about it.  It was due for a bounce.But, this morning, NG gapped down to 1.862 — a low not seen since March 29, 2009, a few weeks after stocks finally bottomed out.

continued for members…It has since rebounded a bit, but there’s nothing in the chart that would indicate a recovery is imminent. When long-term support is broken like this, we have to look to intermediate and short-term channels and Fibs — which, in this case, aren’t terribly bullish.  Note the well-formed falling gray channel in the chart below.  It’s been guiding prices lower since 2014 and suggests 1.632 by year end.

At that price point, things get very interesting.  1.632 is only slightly higher than the 1999 lows at 1.62.  If NG bounces there, we’ll consider it a very deep retracement and all is good.  If it drops through the 20-year lows, we could easily see 1.25-1.31 by year end.

The larger question, of course, is what to expect from the yen carry trade now that oil and natural gas are plumbing new lows.  I’ll be updating the CL and USDJPY charts in the next 24 hours or so.

Stay tuned.