Natural gas continues to trend lower inside a falling channel on its 1-hour time frame and is currently testing the mid-channel area of interest. A break above this could send price back up to the channel top at $2.500.
Technical indicators suggest that the resistance is more likely to hold than to break. The 100 SMA is below the 200 SMA to confirm that the path of least resistance is to the downside or that the selloff is more likely to resume than to reverse.
The gap between the indicators is widening to signal strengthening bearish pressure, and the 200 SMA is close to the channel top to add to its strength as resistance.
Stochastic is already heading lower to show that selling pressure is in play, and the oscillator has plenty of room to go before indicating oversold conditions or exhaustion among sellers.
RSI is also moving south, so price could follow suit as bearish momentum is present. This might be enough to take natural gas down to the channel bottom around $2.400.
Natural gas has been on weaker footing in the past weeks as temperatures are starting to climb in several parts of the US. The winter season is now over and spring might be starting to set in, leading to weaker demand for heating commodities.
Supply has also been elevated, and the latest round of inventory numbers have been showing gains in stockpiles. The upcoming EIA inventory report might show an even larger build of 22 Bcf, higher than the earlier increase of 14 Bcf and indicative of potential oversupply conditions.
However, risk appetite might still be enough to keep losses in check, as investors’ demand for higher-yielding assets could boost natural gas and other commodities like crude oil. Market attention on vaccination rollout efforts and stimulus programs might be enough to keep risk-taking in play.