Natural gas recently broke out of its symmetrical triangle pattern to signal that a rally of the same height as the chart pattern is due. However, price might still pull back to the broken resistance before heading further up.
The Fibonacci retracement tool shows that the 61.8% level is in line with the broken triangle top to add to its strength as a floor. This is also in line with the dynamic support at the moving averages and the $3.700 major psychological mark.
A shallow correction could already find buyers at the 38.2% level around $3.800 or the 50% level at $3.764.
Stochastic is just turning lower from the overbought zone to signal a return in selling pressure, so the oscillator and price have plenty of room to slide. RSI also just reached the overbought area and might be heading back down to signal a pickup in selling pressure.
Natural gas was able to stage a pretty strong rally, despite the pickup in risk-off flows due to virus concerns lately, as weather agencies predicted even higher temperatures up ahead.
Seasonal demand for natural gas typically picks up around this time of the year as warmer weather lifts purchases of cooling commodities.
“The overnight weather data teases cooler air attempting to push into the northeastern U.S. around Aug. 2-4, although a bit too far out to expect it,” NatGasWeather said. “As such, the back end of the 15-day forecast maintains a bullish lean until the weather data shows stronger bouts of cooling into the northern U.S.”
“National demand will increase late this weekend through next week as strong upper high pressure over the western and central U.S. expands eastward, with highs of upper 80s and 90s gaining ground,” the agency noted.
The upcoming inventory report from the Department of Energy might show another significant drop in stockpiles, although it’s also worth noting that producers are increasing output to keep up with demand.