Natural gas prices surged to a new high of $4.55 on Tuesday before facing resistance that triggered a pullback. The resistance came from the 50% retracement of a long-term downtrend and a rising channel’s top trendline. This same trendline had previously acted as resistance during the last two rallies. This could mean that the current price zone, marked by both indicators, continues to face resistance. However, there’s also a possibility that the bulls will break through this barrier, pushing prices towards the next potential resistance zone.
Possible Breakout to Higher Levels
A breakout above the current resistance could signal a shift in the rising parallel channel, a pattern that has shown some symmetry during this uptrend. While this could lead to further gains, caution is advised, as a false breakout is a strong possibility. If the breakout holds, the next target zone could be between $4.70 and $4.72, based on two extended Fibonacci levels. Beyond that, the $4.77 level is a key target, as it would mark a 38.2% Fibonacci retracement of the entire decline that began after natural gas peaked at $10.03 in 2022.
Bullish Monthly Signal
The rally on Tuesday triggered a bullish continuation signal on the monthly chart, as it surpassed last month’s high of $4.78. A daily close above that level would confirm the strength shown by the breakout. Moreover, the pullback to $3.74 on Monday, followed by a strong recovery, indicated that buyers were stepping back into the market.
A breakout from a small wedge followed the pullback, and the day closed near the highs, signaling strength. While the demand could remain strong enough for the breakout to continue, it’s possible that the momentum could quickly fade. Whether the rally continues will depend on whether it breaks through before a minor pullback.
Slingshot Setup
The initial drop on Tuesday, followed by a sharp rally, suggests that bullish momentum might accelerate. Several indicators, including the 50-Day and 20-Day moving averages and the 50% retracement, all converged around the same price zone, which added significance to the rally. When multiple indicators align, it often marks a key turning point in price movement.
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