Natural gas rallied to test resistance around the downtrend line with the day’s high of 2.86. That high is the extent of the bounce so far from the 2.635 swing low reached on Monday. Today’s high defines resistance up to the swing high and weekly high of 2.95.
A decisive advance through 2.95 confirms an upside breakout and the potential continuation of the uptrend that has developed since the April 25 swing low. Nevertheless, natural gas remains in a precarious position and uncertainty remains as to the next direction.
20-Day Line Tells a Story
The relationship to the price of natural gas and the 20-Day MA tells a story over the past few days. Notice that Monday ended above the 20-Day line and yesterday’s close was below the 20-Day line. At the time of this writing natural gas is on track to close weak, in the lower third of the day’s range and again below the 20-Day line. Since the line had shown support during the trend’s rise, successful tests of the 20-Day line as resistance continue to keep the possibility of a deeper retracement as a possibility.
Further Weakness Below 2.635
A break below Monday’s low of 2.635 is a sign of weakness, and it opens the door to a deeper retracement. However, a dip below Tuesday’s low of 2.70 will provide an earlier signal of pending weakness. On the downside, the initial target is the 200-Day MA, currently at 2.47. Also, the 50-Day MA is a little lower than the 200-Day line at 2.43.
Recovery from Shallow Retracement is Bullish
Notice that Monday’s low found support near the 78.6% Fibonacci retracement level of the internal upswing. However, the larger upswing has a minimum 38.2% Fibonacci retracement of the full trend 2.55. It provides a potential support area that is above the 200-Day line. The fact that the recent retracement found buyers before testing support of the 38.2% Fibonacci level is a sign of strength. That is, if it follows through with additional bullish signals. Once there is a daily close above 2.95, natural gas would have cleared an important price level to indicate that the trend is indeed improving.
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This article was originally posted on FX Empire
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