We’ve likely seen the bottom for the price of natural gas.
Admittedly, I thought it looked ready to rally last November. Back then, natural gas was priced at $2.20, and I thought it would rally as we headed into the seasonally strong winter months.
That didn’t happen.
Oh, sure, the price of natural gas did pop a bit higher right after we ran that essay. But, the rally didn’t hold. The price declined all through December and January. Natural gas traded as low as $1.80 last week.
At that price, natural gas was at its lowest level in four years. It was viciously oversold. It was stretched historically far below all of its various moving averages. And, the proverbial “rubber band” looked set to snap back in the other direction.
The “snap-back” rally started yesterday as natural gas popped almost 8% higher.
Here’s the chart…
Last week, natural gas traded about 16% below its 50-day moving average line (the blue squiggly line on the chart). That’s extreme. Natural gas rarely strays more than 10% from its 50-day MA before snapping back towards the line.
The decline in early February also created positive divergence on the MACD and CCI momentum indicators at the bottom of the chart. In other words, while the price of natural gas was falling, the indicators were rising. That sort of “positive divergence” is often an early warning sign that the trend is about to reverse.
As you can see, that reversal happened yesterday with an 8% jump in the price of natural gas.
This is quite likely the start of an intermediate-term rally phase for natural gas. At a minimum, the price should rise up to its 60-day moving average line at about $2.08. Over time, though, we could see much higher prices. Since the downside move was so extreme, a snap-back rally could create similar extreme conditions on the upside. It’s possible natural gas could run as high as $2.40 by the end of spring.
Traders should use any short-term weakness in the price of natural gas as a chance to buy.
Best regards and good trading,
Jeff Clark
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Reader Mailbag
Today we have a few kind words from Delta Report member, Ravikumar…
Hi Jeff, I’m a longtime subscriber to all of your services, and I love them. I read your daily articles about the market and really appreciate your market wisdom.
I regularly buy your Delta Report options recommendations and made some money on one of your trades.
– Ravikumar
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