A Long Term View On…. Natural Gas
- Posted by Greg Harmon
- on December 4th, 2012
Natural Gas ($NG_F, $UNG) is a key commodity to the United States and may be the key to energy independence. It has been replacing coal in power generation plants and fueling job growth throughout Ohio and Pennsylvania through the Utica and Marcellus Shale fields, and the Dakotas from the Bakken. The price has had wild movements over the last few years from the interplay of the fundamentals around supply and demand. But what do the technicals suggest? Let’s take a look.
Starting with the monthly view above 2012 was a critical year. Price broke below the 20 year uptrend support level, spending 9 months underneath it. Moving back above it in October, the monthly picture shows an Evening Star in November touching the 50 month Simple Moving Average (SMA) that could signal a reversal lower. It needs to be confirmed by a lower close in December, to confirm the reversal. It is also important to continue to watch the Relative Strength Index (RSI) which at the mid point at 50 is currently stalling after a top in line, but slightly above the highs from 2009 through 2011. This creates a RSI Negative Reversal with a price target of 0.92. This will be in force until the price moves over the previous high at 4.98. The Moving Average Convergence Divergence indicator (MACD) remains positive and is growing, so a reversal is not a slam dunk. Zooming in on the weekly chart below can show a bit more detail. What stands out is the channel moving higher. Any of my readers will notice that this has gone longer than I had anticipated over
the summer. The trend at this scale remains higher but there are signs of cracking. Last week’s long bearish candle peaked at the retest of the breakdown from the end of October and the 200 week SMA. The RSI made a double top at the technically overbought level at 70 and the MACD is fading. Divergences lower are appearing. A move under the 100 week SMA will add confidence to a further retracement. Finally bringing the microscope to full power on the daily chart below gives detailed levels where the bias can turn to bearish. The RSI on this timeframe is making a new lower low with a MACD negative and growing more so that are supportive of a downside move. Currently
there are a series of higher lows (3.33, 3.40, 3.47) if the current 3.53 holds up. There are also a series of higher highs (3.55, 3.65, 3.85 and 4.00). These show the uptrend intact. Under 3.47 calls it in to question and under 3.33 reverses the bias, while a move back over 4.00 confirms the uptrend. So the uptrend remains but there are sign of a possible reversal as you move out the timeframes. Key levels to watch come from the daily timeframe with a move under 3.33 turning the bias to bearish and back over 4.00 reconfirming the uptrend.
This is the first in a series of A Long Term View On …. articles that will appear between now and year end.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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