Natural gas prices rose slightly during Thursday’s trading session to beyond $8.50, but have already surrendered a significant portion of the gain. This says to me that we will eventually break down a bit and possibly continue falling. That does not imply that shorting this market will be simple, and in fact, this is the second most volatile market I can think of off the top of my head. In other words, you must use extreme caution with position sizing.
If we break back down to a negative candlestick for the day, effectively breaching below $8.18, I believe the natural gas markets will continue to drift down, maybe attempting to reach the 50-day exponential moving average. If we break below this level, it is possible that we will go considerably lower, possibly as low as $7.00.
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On the upside, the $9.00 level continues to be viewed as a significant resistance barrier and has twice repelled buyers. If we were to break above all of that, it would be really positive. However, I do not believe it will be simple to climb above there, so it is likely that we will continue to see people prepared to fade this market in the area of that price.
From a longer-term viewpoint, the $9.50 level appears to be a major “double top” at this time. Yes, it somewhat resembles a bullish flag at the moment, but you can also see bullish flags in other double tops from the past. In other words, the flag is not bullish unless it is validated, which is not the case.