FX.co ★ NTFX | Natural Gas (NG)

Natural Gas, in its daily chart reveals that the market has moved out of a long corrective period into a strong impulsive move, which was followed by a sharp decline and is currently questioning the durability of the overall bullish formation. However, price had been moving in a comparatively broad horizontal-to-downward range earlier in the period and volatility was gradually compressing in terms of the Bollinger Bands becoming narrower through mid-summer. This stage was marked by intersecting candles and regular regressions on both sides of the mid-band indicating equilibrium and not the conviction of direction. The framework at this stage was not showing any definite higher highs which is a valid confirmation of the lack of a steady trend. A structural change emerged amid late August and early September, with price setting up an increment higher at the close of the 2.903.00 area and was starting to push above the declining pressure which had topped the previous rebounds. This action was in conjunction with price moving and settling above the midline of the Bollinger Bands which tends to be a good indicator of a shift in trend. The next series of highs and new highs substantiated the emergence of a new bullish construct, which was further supported by the accelerating price trend moving out of the bottom boundary of the rising trend line drawn in the chart. The rally which was impulsive and extended into October and November was technically strong. Price increased fastly out of the 3.20–3.30 zone to the 5.30–5.40 zone staying on the upper Bollinger Band. This is normal in strong trending conditions where volatility increases along direction of the trend as opposed to indication of immediate depletion. The advance was steep and pullbacks in this stage were shallow, and they were always found to rest on short-term moving averages and mid-band, and this proved the aggressive dip-buying. This peak was formed just a bit higher than the 5.30 area which was a very important structural peak. Since then, the price did not continue to stretch higher and started to record low highs on the daily chart. The initial warning signal was the decisive price broke the upper Bollinger Band and lost the mid-band, indicating the transition of the trend continuation to the correction. This was followed by a drastic fall, which meant that the earlier boom had been over-expressed and open to profit taking. Price is at present trading at the bottom of the ascending channel, around the 3.453.60 range. This area is technically important, because it is an intersection of channel support, previous consolidation and closeness to the lower Bollinger Band. The fact that price has gotten to this area in fairly short time is an indication of the effectiveness of the corrective action. Nevertheless, the deepness of the pullback did not allow to fully invalidate the larger bullish structure since the price has not yet fallen below the site of the impulsive breakout close to 3.00. The 3.30 -3.40 region is now a crucial support zone. A daily close below this area would be a clean break of the upward channel and would indicate a more fundamental change of direction of a wider incorporation or reversal of the trend. The next significant support would be below this, around 3.00 3.10 which would be the bottom of the previous break out and the bottom of the wider range. A shift to such a zone would mean that all of the impulsive leg would have been relinquished, a big drawback to the bullish argument. The positive is that there is now a resistance at 3.90-4.10 on which the price had consolidated itself at the initial phases of the sell-off. This area coincides with the lower end of broken short-term structure and would probably serve as resistance first in the rebound. Beyond that, there is a greater area of resistance at 4.60-4.70 which coincides with the mid-channel and previous swing lows that is now the supply. This would be the only recovery level that would carry a significant impact of restoring the bullish momentum. On the whole, the technical outlook is of a market that is in a corrective stage following a strong surge. The medium term trend has been aggressive but price has been above the 3.30-3.00 support band; this indicates that the trend is positive. But clearly the momentum has changed downwards in the short run and price is approaching structurally significant levels. The action about the lower boundary of the channel reaction will be critical in deciding whether this move will amount to a healthy correction in an uptrend or will become a larger scale trend reversal.