Natural gas was recently trending lower inside a falling channel on its 1-hour chart, but price just broke to the upside to signal that a reversal is due.
Technical indicators are suggesting there might still be some bearish pressure left. For one, the 100 SMA is below the 200 SMA to indicate that the path of least resistance is to the downside or that resistance levels are more likely to hold than to break.
With that, price could still retreat to the broken channel top which might now hold as support. This is close to the 100 SMA dynamic inflection point, which adds to its strength as a floor.
RSI is turning lower to signal that selling pressure is present, and the oscillator has plenty of room to head south before reflecting oversold conditions. Stochastic is also in the overbought area to reflect exhaustion among buyers and a likely return in selling pressure.
Natural gas traders seem to be anticipating a smaller build in inventories as reported by the Department of Energy. If so, this would signal slightly stronger than usual demand, despite the onset of warmer weather conditions all over the US. Analysts predict that stockpiles could increase by 48 Bcf, lower compared to the earlier 56 Bcf gain.
According to the National Oceanic Atmospheric Administration, the weather is expected to remain warmer than normal over the next 8-14 days and there is no tropical cyclone activity in the Atlantic or the Gulf of Mexico.
However, a bit of risk aversion has been in play in the markets as US-China tensions continue to flare while market watchers worry about another wave of the pandemic. This could spur another round of risk-off flows, which would dampen investor appetite for higher-yielding assets like commodities.