Natural Gas Price Analysis: Correction unfolding within an uptrend
- Natural Gas is correcting within a short-term uptrend.
- The RSI is giving a sell-signal further increasing the chances of a pullback evolving.
- The trend is expected to continue after the correction has finished.
Natural Gas price is in a short-term uptrend evidenced by the rising sequence of peaks and troughs on the 4-hour chart, and the fact it is trading above all its key Moving Averages.
Given the old adage that “the trend is your friend,” the commodity is likely to continue rallying over the short-term horizon (up to 6 weeks) unless and until the evidence suggests otherwise.
Natural Gas 4-hour Chart
The Relative Strength Index (RSI) momentum indicator has been fluctuating at overbought extremes since May 3 and consistently showing bearish divergence with price. This occurs when price reaches new highs but the RSI fails to follow suit. It is a sign of underlying weakness.
The RSI has just moved out of overbought and re-entered neutral territory during the last bar, giving a sell signal. Taken together with the pullback in price it suggests the possibility of a deeper correction unfolding.
The zone of support between $2.42 and $2.32 MMBtu is likely to underpin any declines, however, and provide a springboard to a resumption of the uptrend eventually.
After the correction Natural Gas will probably continue to new highs in line with the dominant uptrend. A break above the $2.50 MMBtu level would indicate a continuation higher, potentially to an initial target at roughly $2.60 MMBtu.
If Natural Gas price breaks below $2.32 MMBtu it will bring the uptrend into doubt and suggest the possibility that a reversal has occurred and a new downtrend is beginning. In such a scenario, short positions as opposed to long positions would be favored.