Natural gas futures have been very weak the past six months. Several months ago, the world seemed to be betting on a cold winter in Europe and soaring futures prices. In stories on gas prices, we saw images of huddled masses. Those dire predictions have not come to be but now is not the time to shift gears to a bearish forecast. Let's review the charts and indicators.
In this daily Japanese candlestick chart of natural gas futures continuation, below, I can see a major decline from August-to-date. Recently prices have made a number of spinning tops and small real bodies. Small real bodies are a sign that bulls and bears are close to being in balance. Trading volume has been very light in January and could suggest that the market is "sold out." The daily On-Balance-Volume (OBV) line has been steady in January. The 12-day price momentum study has made higher lows since early January even as prices have moved lower - the pace of the decline has slowed and sometimes this can foreshadow a price rally.
In this weekly Japanese candlestick chart of natural gas futures, below, I can see similar small real bodies as on the daily candle chart above. Again, this is approaching a balance between bulls and bears. The weekly OBV line has made a new low for the move down so this indicator is still bearish. The 12-week price momentum study shows equal lows when prices made lower lows for a bullish divergence.
In this daily Point and Figure chart of natural gas futures, below, I can see that prices have reached and exceeded a downside price target in the $4.29 area.
In this weekly Point and Figure chart of natural gas futures, below, I can see that prices reached and exceeded a downside price target in the $3.59 area.
In this third and last Point and Figure chart of natural gas futures, below, I used a scaling method of looking at the average true range (ATR). Here the software suggests a price target in the $2.70 area.
Bottom line strategy: Aggressive traders with futures experience could go long the nearby natural gas future in the $3.10-$3.00 area. Add to longs above $3.20. Risk to $2.96 for now.
