Natural gas futures (/NG) put in a divergent high on the 60-minute time frame in last night’s trading session, so far reversing just shy of the 3.11ish resistance level. Maybe we get one more thrust up to test that resistance level again soon, maybe not. My preferred scenario at this time has natural gas reversing off the 3.10-3.12 resistance zone & should that prove to be the case, my expectation is for a pullback to at least the 3.00 level & quite possibly the 2.866 or even the 2.78 level before a resumption of the uptrend.
The 60-minute chart above is useful for predicting the near-term direction of natural gas prices while the daily charts below help to provide insight on the intermediate & longer-term trends in nat gas. A few things stand out to me on this first daily chart below (end-of-day chart, not yet reflective to today’s prices). Nat gas recently made a low-level bullish crossover on the PPO with with previous low-level bullish crossovers immediately followed by rallies ranging from 20% – 50% before any meaningful pullback. So far, nat gas has rallied about 21% off the December 21st lows.
Also note that unlike the major bottom in March of 2016 & the major top in December 2016 (RSI divergence), the recent low in nat gas was not a divergent low. Positive divergence is not an absolute requirement for a major rally in nat gas but the lack of divergences on the recent low does increase the odds that this may just be a temporary rally vs. the start of a multi-month rally with a lot more upside to come.
I also noted a pattern in recent years with nat gas prices rallying into or just before year-end, only to be followed with an equally sharp or greater correction starting short before or after the new year. As mentioned above, the current rally off the December 21st lows so far has resulted in a gain of about 21% (shown as 18% on the chart below which does not reflect last night’s gains yet).
Bottom line: I favor at least a minor pullback in nat gas from at or near last night’s high of 3.10 (February contracts). Should that occur, I may look to position for the next long entry on a pullback to any of the aforementioned price targets, should the charts confirm an entry at that time. Nat gas may continue to rally but at this time, I can no longer make an objective case for adding any new long exposure with negative divergences on the 30 & 60-minute time frames & significant resistance just overhead.