Why Natural Gas Could Rally 40% From Here!
With that being said, it's no secret that this market remains a mess from a structural perspective, trading below the 2012 lows and downtrend line from the November 2014 highs. My downside price target of the 2015 lows was met and exceeded last week which suggests we approach this market from a neutral perspective until prices can close above the previously mentioned 2012 lows and downtrend line. Only then would it be appropriate to approach this market from the long side, structurally.
Despite the bleak structural picture, recent developments on the daily chart suggest this market is going higher tactically. Last week prices broke below the 2015 lows while momentum positively diverged and quickly broke back above those lows and the downtrend line from the February 8th highs.
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This failed breakdown suggests that we want to be aggressively long this market as long as we remain above the December lows on a closing basis. If this rally continues to develop, tactical longs can utilize the following as price targets and areas to reassess depending on their individual process:
- The October lows near 1.95
- The downtrend line from the August highs and 38.2% retracement of the August-March decline near 2.12
- Prior support / resistance, the 61.8% retracement of the August-March decline, and the downward sloping 200 day moving average near 2.43
The Bottom Line: Natural Gas has been absolutely crushed year-to-date, but this failed breakdown provides a tactical entry on the long side where the risk is well-defined and the risk/reward is elevated. With prices extended from their 200 day moving average and seasonality and sentiment providing a strong tailwind to prices, I think this failed breakdown is the start of some serious mean reversion.
We only want to be long this market above the December lows on a closing basis and should look to take profits or reassess the position at the resistance levels discussed above. I ultimately think this market tests the 200 day moving average near 2.43 which represents 40% upside from current levels, but we'll have to see how market conditions develop over the course of the days and weeks ahead.
As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can. @BruniCharting
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JC here - I like where Bruni's head is on this one. He nailed the fade earlier this year and now he's looking for a mean reversion. If there's anyone we want to listen to in this market it's Bruni. Natural Gas has been destroyed, no doubt. All of the attention is on Crude Oil, and ignoring natural gas, which we love to see. Seasonals and sentiment are in favor of the bulls here. Momentum is diverging positively, potentially on multiple timeframes. Most importantly, the risk is very well-defined. That's not always the case. I would only own this if we're above the December lows. No reason to be long if we're below that. It's that simple. Well done Bruni.
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Tags: $NG_F $UNG $BOIL $UGAZ $DGAZ
The author does not have a position in the mentioned securities at the time of publication.
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