Natural Gas Futures Likely to Trade in Current Range Awhile

 | Jun 14, 2017 | 10:43 AM EDT
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Natural gas futures appear to have bottomed out in late 2015/early 2016, but the subsequent rally has stalled and has turned into a sideways trading range market.

Nimble futures traders can profit by short-term swings, but us mortal "upstairs traders" who pay commissions can be very frustrated. Let's look at some charts and indicators to see if this condition will change or persist.

In this daily candlestick chart of the "continuous futures contract" of natural gas futures, above, we can see that prices are below the declining 20- and 50-day moving average lines. Prices are trading around the $3.00 area and there are some lower shadows suggesting that traders are rejecting the lower prices.

The daily On-Balance-Volume (OBV) line turns up in late February with the price action and peaks around mid-May as prices make the first of two upside failures around $3.40. The OBV line has declined the past few weeks, mirroring the price action. The daily Moving Average Convergence Divergence (MACD) oscillator is below the zero line (bearish), but it could be narrowing toward a cover-shorts buy signal.

In this weekly chart of natural gas futures, above, we can see a low made around March 2016 followed by a decent rally until late 2016/early 2017. Prices are now below the 40-week moving average line but the slope of the line is still positive. The weekly OBV line makes a double bottom in the first half of 2016 and then starts a rise that is still going. It is interesting that the OBV line is near its highs but prices are well off their best levels. With futures volume you don't really know whether this is outright buying/selling or hedging against inventory or production or what. I am sure someone will have a different interpretation, but I am going to work with the assumption that this rising OBV line is bullish. The daily Moving Average Convergence Divergence (MACD) oscillator is pointed down but but above the zero line. The next move the in the MACD will follow the price action in the weeks ahead.

Bottom line: The easiest forecast is to call for more of the same -- a $2.90 to $3.40 trading range.

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