Natural Gas's Head and Shoulders formation/Consolidation season
Updated
1)The price of natural gas remains above $3 per MMBtu.
2)Inventory's last increase was smaller than expected.
3)Open interest is at the highest level compared to the last 5 years.
4)The question is can natural gas continue it's rally or not?
Natural gas Price
Natural gas after hitting it's low for 2017 at $2,522, which is almost 60% up compared to 2016 low of $1,617, it has reached the high of $3,337.
Don't forget that we are talking about a seasonal product. The spring season is considered to be one of the weakest seasons as far as demand for natural gas. Weather conditions are quite mild that season because the requirements for heating and cooling are balanced and low.
Natural gas tends to spike in summer at the "cooling demand" and at winter at "heating demand".
We can relate this year's price movement to last year 2016 due to the seasonality of the natural gas. We can see at the chart below that we had a downtrend rally until early March and then a uptrend rally until April before we went into consolidation phase to take-off for the "summer-rally" in June. Based on that seasonality we can see at the chart I believe that after today's small pullback (2017-04-11) we are entering at the consolidation phase.(Blue vertical lines start of the years and Red lines month April)
TECHNICAL OBSERVATIONS
At the chart below we can see the uptrend line from last year and the wider channel it was moving before it breaks it at February 2017 to the down side. Since then it started a rally and reached up to $3,337. We can also noticed the tight range of the ascending channel that has trouble to establish the 50% Fibonacci level at $3,250 area and it still hasn't reach the critical 61,8% Fibonacci level at $3,400 area to turn it's mid-term trend up. We have strong resistance levels at $3,250 and $3,400 area and good support levels at 3,100 from mid-term trend sicne last year, at $3 level with 200EMA and at 2,960 area with the 200MA.
We can also see that the tight ranged ascending channel has broken and we have as a support the upwards trend line since last year.
We also have a Head and Shoulders formation that in order to be verified as a changing trend formation it needs to break the neck line which happens to be the current trend line since last year.
Conclusion
As mentioned because of the seasonality of the natural gas I believe that the "heating rally" hasn't started yet and this move we are watching right now with this tigh range is just a bearish flag formation.
Short-term:Bearish: I believe that we are ready for a small pullback at $3 level or at a more bearish scenario $2,950 level, if this support will be broken we would have a continuation of the mid-term downward move.
Mid-term/Long-term:Bullish: For mid and long term trend I remain bullish as if we enter the consolidation phase of next two months at these levels of the price we can reach the 4,5-$5 area per MMBtu but not too much higher because of the forecast of a mild summer temperatures.
3,5$ per MMBtu is crucial level to see a short squeeze and take an extra push for upward momentum.
Disclosure: I/we have no positions on natural gas and no plans to initiate any positions the next 3 days. I wrote this artricle and it expresses my own opinions.
Happy trading guys and thank you for your time!!
2)Inventory's last increase was smaller than expected.
3)Open interest is at the highest level compared to the last 5 years.
4)The question is can natural gas continue it's rally or not?
Natural gas Price
Natural gas after hitting it's low for 2017 at $2,522, which is almost 60% up compared to 2016 low of $1,617, it has reached the high of $3,337.
Don't forget that we are talking about a seasonal product. The spring season is considered to be one of the weakest seasons as far as demand for natural gas. Weather conditions are quite mild that season because the requirements for heating and cooling are balanced and low.
Natural gas tends to spike in summer at the "cooling demand" and at winter at "heating demand".
We can relate this year's price movement to last year 2016 due to the seasonality of the natural gas. We can see at the chart below that we had a downtrend rally until early March and then a uptrend rally until April before we went into consolidation phase to take-off for the "summer-rally" in June. Based on that seasonality we can see at the chart I believe that after today's small pullback (2017-04-11) we are entering at the consolidation phase.(Blue vertical lines start of the years and Red lines month April)
TECHNICAL OBSERVATIONS
At the chart below we can see the uptrend line from last year and the wider channel it was moving before it breaks it at February 2017 to the down side. Since then it started a rally and reached up to $3,337. We can also noticed the tight range of the ascending channel that has trouble to establish the 50% Fibonacci level at $3,250 area and it still hasn't reach the critical 61,8% Fibonacci level at $3,400 area to turn it's mid-term trend up. We have strong resistance levels at $3,250 and $3,400 area and good support levels at 3,100 from mid-term trend sicne last year, at $3 level with 200EMA and at 2,960 area with the 200MA.
We can also see that the tight ranged ascending channel has broken and we have as a support the upwards trend line since last year.
We also have a Head and Shoulders formation that in order to be verified as a changing trend formation it needs to break the neck line which happens to be the current trend line since last year.
Conclusion
As mentioned because of the seasonality of the natural gas I believe that the "heating rally" hasn't started yet and this move we are watching right now with this tigh range is just a bearish flag formation.
Short-term:Bearish: I believe that we are ready for a small pullback at $3 level or at a more bearish scenario $2,950 level, if this support will be broken we would have a continuation of the mid-term downward move.
Mid-term/Long-term:Bullish: For mid and long term trend I remain bullish as if we enter the consolidation phase of next two months at these levels of the price we can reach the 4,5-$5 area per MMBtu but not too much higher because of the forecast of a mild summer temperatures.
3,5$ per MMBtu is crucial level to see a short squeeze and take an extra push for upward momentum.
Disclosure: I/we have no positions on natural gas and no plans to initiate any positions the next 3 days. I wrote this artricle and it expresses my own opinions.
Happy trading guys and thank you for your time!!
Trade active
Note
Neck line is broken,next level to look 3,00$.Must hold this level to keep the uptrend.
Consolidation phase is about to start.
Note
Back in ascending trend line..Let's see i think 3,5$ level is the roof for this season..
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